1 General Information China Metallurgical Construction Group Corporation, the Predecessor of China Metallurgical Group Corpora

China Metallurgical Construction Group Corporation, the predecessor of China Metallurgical Group Corporation, was a wholly state-owned enterprise incorporated in Beijing in 1982. On 8 May 2006, China Metallurgical Construction Group Corporation was renamed as China Metallurgical Group Corporation. On 27 April 2009, upon the approval of the State-owned Assets Supervision and Administration Commission (hereafter referred to as ―SASAC‖), the Chinese name of China Metallurgical Group Corporation was renamed as China Metallurgical Construction Group Corporation (hereafter referred to as ―the Company‖). The Company‘s business license registration number is 100000000000942, its legal representative is Wang Weimin, and its registered capital is RMB 749,286.14 ten thousand. The Company‘s registered office is at 28 Shuguang Xili, Chaoyang District, Beijing.

At December 31, 2011, the paid-in capital was as follow:

Investor Percentage of interest held (RMB ten thousand) （%)

SASAC 749,286.14 100.00 749,286.14 100.00

The ultimate controlling party of the Company is SASAC.

The Company‘s legal person governance structure relies on its Supervisory Committee to oversee the actions of its Board of Directors and management personnel.

The Company's organisation structure is led by its president and executive director under the direction of its Board of Directors. The Company has 7 subsidiaries comprises 5 wholly-owned subsidiaries, 1 partially-owned subsidiary and 1 wholly owned hospital.

Business scope of the Company and its subsidiaries (hereafter referred as the ―Group‖):

The approved business scope includes metallurgical engineering, housing construction, transportation infrastructure projects as well as mining, environmental protection, electrical, chemical, light industry and electronic engineering research, planning, surveying, consulting, design, procurement, construction, installation, dimensional inspection, supervision and related technical services; domestic and overseas metal mineral resources development, smelting, and non-metallic mineral resources processing; production, marketing, and sales of production of these products, raw materials, research and development of products; development of residential and commercial real estate, sales and first-land development; development and sales of paper-making raw materials and products. The actual main scope of business activities of the Company and its subsidiaries (hereafter referred as the ―Group‖) during 2011 were as follows: Construction and related engineering consulting services in metallurgical, properties, transport infrastructure, mining, electronics and chemical industries; resources development; property development; paper manufacturing.

The Group‘s main operating segments are as follows: engineering and construction, property development, resources development, equipment manufacturing, paper manufacturing and others.

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The Group has prepared its consolidated financial statements in accordance with the Basic Standard and 38 specific standards of the Accounting Standards for Business Enterprises issued by the Ministry of Finance on 15 February 2006, and the Application Guidance for Accounting Standard for Business Enterprises, Interpretations of Accounting Standards for Business Enterprises and other relevant regulations issued thereafter (hereafter referred to as ―the Accounting Standard for Business Enterprises‖ or ―CAS‖).

3 Statement of compliance with the Accounting Standards for Business Enterprises

The financial statements of the Group for the year ended 31 December 2011 are in compliance with the Accounting Standards for Business Enterprises, and truly and completely present the financial position of

the Group as of 31 December 2011 and of its operating results, cash flows and other information for the year then ended.

4 Summary of significant accounting policies and accounting estimates

(1) Accounting period

The Company‘s accounting year starts on 1 January and ends on 31 December.

(2) Recording currency

The recording currency of the Company and its domestic subsidiaries is Renminbi (―RMB‖). Items included in the financial statements of its subsidiaries abroad are measured using the currency of the primary

economic environment in which the entity operates. The financial statements are translated and presented in RMB. The currency used in the Company‘s financial statements is RMB.

(3) Business combinations

(a) Common control business combination

In a common control combination, assets and liabilities are transferred at book values. Any difference between the consideration given and the aggregate book value of the assets and liabilities acquired is included in equity to adjust capital reserve. Retained earnings shall be adjusted when capital reserve is insufficient to offset. Acquisition related costs are expensed as incurred. Costs of issuing equity or debt for a business combination should be included in the initial recognition of equity or debt.

(b) Business combination other than common control combination

The acquisition method of accounting is used to account for business combinations other than common control combinations by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the acquisition date. The excess of the consideration transferred over the fair value of the Group‘s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the profit or loss. Acquisition related costs are expensed as incurred. Costs of issuing equity or debt for a business combination should be included in the initial recognition of equity or debt.

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(4) Cash and cash equivalents

For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, call deposits with banks and short-term and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

(5) Foreign currency translation

(a) Foreign currency transactions

Foreign currency transactions are translated into RMB using the exchange rates prevailing at the dates of

the transactions.

At the balance sheet date, monetary items denominated in foreign currencies are translated into RMB using the spot exchange rates on the balance sheet date. Exchange differences arising from these translations are recognised in profit or loss for the current year, except for those attributable to foreign currency borrowings that have been taken out specifically for the acquisition or construction of qualifying

assets, which are capitalised as part of the cost of those assets. Non-monetary items denominated in foreign currencies that are measured at historical costs are translated at the balance sheet date using the spot exchange rates at the date of the transactions. The effect of exchange rate changes on cash is presented separately in the cash flow statement.

(b) Translation of foreign currency financial statements

The asset and liability items in the balance sheets for overseas operations are translated at the spot exchange rates on the balance sheet date. Among the owners‘ equity items, the items other than ―undistributed profits‖ are translated at the spot exchange rates of the transaction dates. The income and expense items in the income statements of overseas operations are translated at the average exchange rates

of the transaction period. The differences arising from the above translation are presented separately in the owners‘ equity. The cash flows of overseas operations are translated at the spot exchange rates on the dates of the cash flows. The effect of exchange rate changes on cash is presented separately in the cash flow statement.

(6) Financial instruments

(a) Financial assets

(i) Classification of financial assets

Financial assets shall be classified into below categories when they are initially recognized: Financial assets at fair value through profit or loss, loans and receivables, financial assets available for sale and investments that are held to maturity. Classification of financial assets depends on the Group‘s intention and ability to hold the financial assets.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for the purpose of selling in

the short term. They are presented as financial assets held for trading on the balance sheet.

Receivables

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in

an active market.

4 Summary of significant accounting policies and accounting estimates (Continued) - 11 -

(6) Financial instruments (Continued)

(a) Financial assets (Continued)

(i) Classification of financial assets (Continued)

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories at initial recognition. Available-for-sale financial

assets are included in other current assets on the balance sheet if management intends to dispose of them within 12 months of the balance sheet date.

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed maturity and fixed or determinable payments that management has the positive intention and ability to hold to maturity. Held-to-maturity investments with maturities of over 12 months when the investments were made but are

due within 12 months at the balance sheet date are included in the current portion of non-current assets; held-to maturity investments with maturities no more than 12 months when the investments were made are included in other current assets.

(ii) Recognition and measurement

Financial assets are recognised at fair value on the balance sheet when the Group becomes a party to the contractual provisions of the financial instrument. In the case of financial assets at fair value through profit or loss, the related transaction costs incurred at the time of acquisition are recognised in profit or loss for the current year. For other financial assets, transaction costs that are attributable to the acquisition of the financial assets are included in their initial recognition amounts.

Financial assets at fair value through profit or loss and available-for-sale financial assets are subsequently measured at fair value. Investments in equity instruments are measured at cost when they do not have a quoted market price in an active market and whose fair value cannot be reliably measured. Receivables and held-to-maturity investments are measured at amortised cost using the effective interest method.

Gain or loss arising from change in the fair value of financial assets at fair value through profit or loss is recognised in profit or loss. Interests and cash dividends received during the year in which such financial

assets are held, as well as the gains or losses arising from disposal of these assets are recognised in profit or loss for the current year.

Gain or loss arising from change in fair value of available-for-sale financial assets is recognised directly in equity, except for impairment losses and foreign exchange gains and losses arising from translation of the monetary financial assets. When such financial assets are derecognised, the cumulative gain or loss previously recognised directly into equity is recycled into profit or loss for the current year. Interests on available-for-sale investments in debt instruments calculated using the effective interest method during the year in which such investments are held and cash dividends declared by the investee on available-for-sale investments in equity instruments are recognised as investment income, which is recognised in profit or loss for the year.

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CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (Continued) (6) Financial instruments (Continued) (a) Financial assets (Continued) (iii) Impairment of financial assets

The Group assesses the carrying amounts of financial assets other than those at fair value through profit or loss at each balance sheet date. If there is objective evidence that a financial asset is impaired, the Group shall determine the amount of impairment loss.

When an impairment loss on a financial asset carried at amortised cost has occurred, the amount of loss is measured at the difference between the asset‘s carrying amount and the present value of its estimated future cash flows (excluding future credit losses that have not been incurred). If there is objective evidence

that the value of the financial asset recovered and the recovery is related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed and the amount of reversal is recognised in profit or loss.

If there is objective evidence that an impairment loss occurred on an available-for-sale financial asset, the cumulative loss arising from the decline in fair value that had been recognised directly in equity is removed from equity and recognised as an impairment loss in profit or loss. For an investment in debt instrument classified as available-for-sale on which impairment losses have been recognised, if, in a subsequent period, its fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the previously recognised impairment loss is reversed and recognised in profit or loss for the current year. For an investment in an equity instrument classified as available-for-sale on which impairment losses have been recognised, the increase in its fair value in a subsequent period is recognised in equity directly.

(iv) Cessation of financial assets

If a financial assets meets any of the following requirements, it shall not be recognised: (1) If the contractual rights for collecting the cash flow of the said financial asset are terminated; (2) If the financial assets is transferred and the Group has transferred nearly all of the risks and rewards relating to the

ownership of the financial assets to the transferee; (3) If the financial assets is transferred and the Group waive its control over the financial assets though it does not transfer or retain nearly all of the risks and rewards relating to the ownership of the financial assets.

If the recognition of a financial asset ceased, the difference between the carrying amount and the sum of the consideration received and any cumulative gains or losses that had been recognised directly in equity is included in the profit or loss.

(b) Financial liabilities Financial liabilities shall be classified into the following categories when they are initially recognised: Financial liabilities at fair value through profit or loss and other financial liabilities. The Group‘s financial liabilities mainly comprise other financial liabilities such as loans and payables.

Payables comprise mainly accounts and other payables are initially recognised at fair values and

subsequently measured at amortised cost using the effective interest method.

Loans are initially recognised at fair value net of transaction costs and subsequently measured at amortised

cost using the effective interest method.

Other financial liabilities are classified as current liabilities except for those with maturities greater than 1

year after the balance sheet date are classified as non-current liabilities.

Financial liabilities are derecognised when it is extinguished, that is when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial

liability (or part of a financial liability) extinguished and the consideration paid shall be recognised in profit or loss.

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(6) Financial instruments (Continued)

The fair value of a financial instrument that is traded in an active market is determined at the quoted prices that are readily and regularly available in the active market. The fair value of a financial instrument that is not traded in an active market is determined by using a valuation technique, including using recent arm‘s length market transactions between knowledgeable, willing parties, reference to the current fair value of another instrument that is substantially the same with this instrument, and discounted cash flow analysis. When using valuation techniques to estimate fair value of a financial instrument, the Group makes maximum use of market inputs and rely as little as possible on entity-specific inputs.

(7) Receivables

Receivables comprise accounts receivable and other receivables. Accounts receivable arising from sale of goods or rendering of services are initially recognised at fair value of the contractual payments from the buyers or service recipients.

(a) Individually significant receivables subject to separate impairment assessment

Receivables that are individually significant are subject to separate impairment assessment. If there is objective evidence that the Group will not be able to collect the full amount under the original terms, a provision for impairment of that receivable should be established.

For the above mentioned impairment assessment, management regards any receivable that is greater than RMB 100 million is individually significant.

For receivables that are individually significant are subject to separate impairment assessment, a provision for their impairment is established at the difference between their carrying amount and the present value of their estimated future cash flows.

(b) Receivables subject to impairment assessment by groups

Receivables that are not individually significant and those receivables that have been individually evaluated for impairment and have been found not impaired are combined into certain groups based on their credit risk characteristics. The provision for impairment losses are determined based on the historical loss experience for the groups of receivables with the similar credit risk characteristics and taking into consideration of the current circumstances.

Groups are determined as follows:

Group 1 Credit risk characteristics Receivables without risk of cash collection according to the nature and history of the customer business transactions Group 2

Provision for the impairment assessment is determined as follows:

Group 1 Ageing analysis Group 2 No provision for bad debts

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(7) Receivables (Continued)

(b) Receivables subject to impairment assessment by groups (Continued)

For Group 1, the provision of those receivables of credit risk characteristics should be based on their aging and determined by Aging analysis. Provision for impairment(%) is as follows:

Provision for impairment Provision for impairment of receivables of other receivables

Within 1 year 5% 5% 1 to 2 years 10% 10% 2 to 3 years 30% 30% 3 to 4 years 50% 50% 4 to 5 year 80% 80% Over 5 years 100% 100%

Reason for separate impairment assessment: there is objective evidence that the Group will not be able to

collect the full amount under the original terms.

A provision for impairment is established at the difference between the carrying amount of receivables and

the present value of their estimated future cash flows.

When the Group transfers its accounts receivable to financial institutions without recourse, the difference (d) between the carrying amounts of the accounts receivable and the proceeds received for the transfer shall be recognised in profit or loss.

(8) Inventories

(a) Classification

Inventories include raw materials, work in progress, finished goods, consumable development costs, properties under development and construction contract—completed and unsettled . Inventories are presented at the lower of cost or net realisable value.

(b) Measurement method of inventories

Cost of inventories is determined using first-in, first-out method or weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour and an allocation of production overheads incurred based on normal operating capacity.

Provisions for declines in the value of inventories are determined at the excess amount of the carrying value of the inventories over their net realisable value. Net realisable value is determined based on the

estimated selling price in the ordinary course of business, less the estimated costs to completion and estimated costs necessary to make the sale and related taxes.

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(8) Inventories(Continued)

(d) The Group adopts the perpetual inventory system.

(e) Amortization of low cost consumables and packaging materials

Consumable items comprise low cost consumables and packaging materials that are sold

by one-time write-off or sub-amortization according to the actual situation.

(f) Accounting policy of properties under development and development cost

Development cost and properties under development mainly include payments for the land transferring fees, basic facilities expenditure, construction and installation expenses, capitalised borrowing costs before development project completion and other expenses in the development process. development cost is

recorded as actually occurred; expenses of public facilities approved by the related government authorities, such as roads, should be included in the development costs, and specified clearly by accounting objects and projects; costs of the land development is also included in the development costs.

(g) Construction contract—dcompleted and unsettled

Construction contracts are presented at aggregate costs incurred and aggregate profits (or losses)

recognised less settled payments and anticipated loss.

The excess of aggregate cost incurred and aggregate profits (or losses) over settled payments are presented as completed and unsettled. The excess of settled payments over aggregate costs incurred and aggregate profits (or losses) are presented as settled and uncompleted.

(9) Long-term equity investments

Long-term equity investments comprise investments in subsidiaries, joint ventures, associates, and other long-term investments where the Group does not have control, joint control or significant influence over the investees and which are not quoted in an active market and whose fair value cannot be reliably measured.

Subsidiaries are the investees over which the Company is able to exercise control; Joint ventures are the investees over which the Group is able to exercise joint control together with other venturers. Associates are the investees that the Group has significant influence on their financial and operating policies.

Investments in subsidiaries are presented in the Company‘s financial statements using the cost method, and are adjusted for preparing the consolidated financial statements using the equity method; Investments in joint ventures and associates are accounted for using the equity method; Other long-term equity investments, where the Group does not have control, joint control or significant influence over the investee and which are not quoted in an active market and whose fair value cannot be reliably measured, are accounted for using the cost method.

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(9) Long-term equity investments (Continued)

(a) Initial measurement

Long-term equity investments accounted for using the cost method are measured at the initial investment costs. For long-term equity investments accounted for using the equity method, where the initial investment cost exceeds the Group‘s share of the fair value of the investee‘s identifiable net assets at the time of acquisition, the investment is initially measured at cost. Where the initial investment cost is less than the Group‘s share of the fair value of the investee‘s identifiable net assets at the time of acquisition, the difference is included in profit or loss for the current year and the cost of the long-term equity investment is adjusted upwards accordingly.

(b) Subsequent measurement

For long-term equity investments accounted for using the cost method, investment income is recognised in profit or loss for the cash dividends or profit distribution declared by the investees.

Under the equity method of accounting, the Group recognises the investment income according to its share of net profit or loss of the investee. The Group discontinues recognising its share of net losses of an investee after the carrying amount of the long-term equity investment together with any long-term interests that, in substance, form part of the investor‘s net investment in the investee are reduced to zero. However, if the Group has obligations for additional losses and the criteria with respect to recognition of provisions under the accounting standards on contingencies are satisfied, the Group continues recognising the investment losses and the provisions. For changes in owners‘ equity of the investee other than those arising from its net profit or loss, the Group records its proportionate share directly into capital surplus, provided that the Group‘s proportion of shareholding in the investee remains unchanged. The carrying amount of the investment is reduced by the Group‘s share of the profit distribution or cash dividends declared by an investee. The unrealised profits or losses arising from the intra-group transactions amongst the Group and its investees are eliminated in proportion to the Group‘s equity interest in the investees, and then based which the investment gain or losses are recognised. The loss on the intra-group transaction amongst the Group and its investees, of which the nature is asset impairment, is recognised in full, and the related unrealised loss is not eliminated.

Control is the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its operating activities. The existence and effect of potential voting rights, including that derived from the convertible bonds and warrants that are currently convertible or exercisable, is considered in determining whether the Group has control over the investee.

Joint control is a 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 parties sharing control.

Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

(d) Disposal of long-term equity investment

Gain and loss on disposal of a long-term equity investment is the difference between the carrying amount of the equity investment and the sum of the consideration received and any cumulative gains or losses that had been recognised directly in equity previously are recognised in profit or loss.

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(9) Long-term equity investments (Continued)

(e) Impairment of long-term equity investment

An impairment loss is recognised in profit or loss for the amount by which the carrying amount of a long-term equity investment exceeds its recoverable amount (Note 4(17)). When an impairment event occurs and if the equity investment is not traded in an active market and does not have a readily available quoted prices, the Group measures the recoverable amount of the long-term equity investment based on its estimated discounted future cash flows. Once the above impairment loss is recognised, it shall not be reversed for the value recovered in subsequent periods.

(10) Investment properties

Investment properties, including land use rights that have already been leased out, buildings that are held for the purpose of lease, and buildings under construction or development that are held for future lease, are measured initially at cost. Subsequent expenditures incurred in relation to an investment property is included in the cost of the investment property when it is probable that the associated economic benefits will flow to the Group and its cost can be reliably measured; otherwise, the expenditures are recognised in profit or loss in the year in which they are incurred.

The Group adopts the cost model for subsequent measurement of the investment properties. Buildings and land use rights are depreciated or amortised to their estimated net residual values over their estimated useful lives. The estimated useful lives, the estimated net residual values expressed as a percentage of cost and the annual depreciation (amortisation) rates of the investment properties are as follows:

Estimated useful Estimated residual Annual depreciation lives value (amortisation) rate

Buildings 15-40 years 3% to 5% 2.38% to 6.47% Land use rights 40-70 years - 1.43% to 3.33%

When an investment property is transferred to an owner-occupied property, it is reclassified as fixed asset or intangible asset at the date of the transfer. When an owner-occupied property is transferred for earning rentals or for capital appreciation, the fixed asset or intangible asset is reclassified as investment property at its carrying amount at the date of the transfer.

The estimated useful life, net residual value of the investment property and the depreciation (amortisation) method applied are reviewed and adjusted as appropriate at each year-end.

An investment property is derecognised on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. The net amount of proceeds from sale, transfer, retirement or damage of an investment property after its carrying amount and related taxes and expenses is recognised in profit or loss for the current year.

An impairment loss is recognised in profit or loss for the amount by which the carrying amount of investment properties exceeds its recovable amount (Note 4(17).)

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CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates(Continued) (11) Fixed assets (a) Fixed assets recognition and initial measurement fixed asset includes buildings, temporary facilities, machinery and equipment, motor vehicles and other equipment.

Fixed assets are recognised when it is probable that the associated economic benefits will flow to the Group and the related cost can be reliably measured. Fixed assets purchased or constructed by the Group are initially measured at cost at the time of acquisition. During the restructuring of the company, the fixed assets invested by state-owned share holders are recognized using assessed value approved by state-owned assets administration department.

Subsequent expenditures incurred for a fixed asset are included in the cost of the fixed asset when it is probable that the associated economic benefits will flow to the Group and the related cost can be reliably measured. The carrying amount of the replaced part is derecognised. All the other subsequent expenditures are recognised in profit or loss in the year in which they are incurred.

(b) Fixed assets depreciation method

Fixed assets are depreciated using the straight-line method to allocate the cost of the assets to their estimated residual values over their estimated useful lives. For the fixed assets that have been provided for impairment loss, the related depreciation charge is prospectively determined based upon the adjusted carrying amounts over their remaining useful lives.

The estimated useful lives, the estimated residual values expressed as a percentage of cost and the annual depreciation rates are as follows:

Estimated useful Estimated Annual lives residual value depreciation rate Buildings 15-40year 3%to5% 2.38%to6.47% Temporary buildings structure 3-5year 3%to5% 19.00%to32.33% Machinery and equipment 3-14year 3%to5% 6.79%to32.33% Motor vehicles 5-12year 3%to5% 7.92%to19.40% others 5-12year 3%to5% 7.92%to19.40%

The estimated useful life, the estimated net residual value of a fixed asset and the depreciation method applied to the asset are reviewed, and adjusted as appropriate at least at each year-end.

(c) An impairment loss is recognised in profit or loss for the amount by which the carrying amount of fixed assets exceeds its recovable amount (Note 4(17)).

(d) Recognition and measurement of finance lease

The finance lease is a lease that transfers substantially all the risks and rewards incidental to the ownership of an asset. A lessee usually shall record the leased asset at an amount equal to the fair value of the leased asset or the present value of the minimum lease payments, whichever is lower, shall recognise a long-term account payable at an amount equal to the amount of the minimum lease payments, and shall treat the difference between the recorded amount of the leased asset and the long-term account payables as unrecognised finance charges.

. In calculating the depreciation of a leased asset, the lessee should adopt a depreciation policy for leased assets consistent with that for depreciable assets which are owned by the lessee. If there is reasonable certainty that the lessee will obtain ownership of the leased asset when the lease term expires, the leased asset should be fully depreciated over its useful life. If there is no reasonable certainty that the lessee will obtain ownership of the leased asset at the expiry of the lease term, the leased asset should be fully depreciated over the lease term or its useful life, whichever is shorter.

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(11) Fixed assets (Continued)

(e) Recognition and measurement of finance lease (Continued)

Fixed assets are derecognized on disposal or when no future economic benefits are expected from its use or disposal. The disposal proceeds less the carrying value and taxes are included in profit or loss for the current year.

(12) Construction in progress

Construction in progress is measured at actual cost. Actual cost comprises construction costs, installation costs, borrowing costs that are eligible for capitalisation and other costs necessary to bring the fixed assets ready for their intended use. Construction in progress is transferred to fixed assets when the assets are ready for their intended use, and depreciation begins from the following month. When the cost of construction in progress exceeds the recoverable amount, the construction in progress shall be impaired and adjusted to the recoverable amount (Note 4(17)).

(13) Intangible assets

Intangible assets include land use rights, the mining right, the franchise use, software, patent and proprietary technology. etc., and re measured at cost. During the restructuring of the company, the intangible assets invested by state-owned share holders are recognized using assessed value approved by state-owned assets administration department.

(a) Land use rights

Land use rights are amortised on the straight-line basis over their approved useful period of 40 to 70 years.。

(b) Mining rights

Mining rights are amortised on the unit-of-production basis according to proved reserves.

The Group engages in certain service concession arrangements in which the Group carries out construction work for the granting authority and receives in exchange a right to operate the assets concerned in accordance with the pre-established conditions set by the granting authority. The assets under the concession arrangements may be classified as intangible assets or account receivables from the granting authority.

During a certain period after the completion of the construction, the assets are classified as financial assets if certain amount of money or other financial assets are receivable unconditionally from the authorizing authorities. Also, if the authorizing authorities shall compensate the difference between the service charge and a certain limited amount, financial assets are also recognized at the same time when revenue is recognized.

If the contract provides that in a certain operating period after the completion of the construction, the company has the right to charge uncertain amount of service fees from customers, and this right does not constitute an unconditional right to collect cash, intangible assets are also recognized at the same time when revenue is recognized.

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(13) Intangible assets (Continued) If the intangible assets mode is applicable, the Group will classify non-current assets related to this concession arrangement as concession assets within intangible assets classification in the consolidated balance sheets. Once the underlying infrastructure of the concession arrangements has been completed, the concession assets will be amortised over the term of the concession period on the straight-line basis or the traffic flow method. If the financial assets mode is applicable, the Group will classify assets related to this concession arrangement as financial assets in the consolidated balance sheets. Once the underlying infrastructure of the concession arrangements has been completed, interest and losses shall be recognized during the concession period using actual interest rate method. (d) Software

Software are amortised on the straight-line basis over their estimated useful period of 3 to 5 years.

(e) Patents

Patents are amortised on a straight-line basis over the patent protection period of 5 to 20 years as stated in contracts.

(f) Periodical review of useful life and amortisation method

For an intangible asset with a finite useful life, review and adjustment on its useful life and amortisation method are performed at each year-end.

(g) Intangible assets impairment

When the cost of intangible assets exceeds the recoverable amount, the intangible assets should be impaired and adjusted to the recoverable amount (Note 4(17)).

(14) Research and development

The expenditure on an internal research and development project is classified into expenditure on the research phase and expenditure on the development phase based on its nature and whether there is material uncertainty that the research and development activities can form an intangible asset at end of the project.

Expenditure on the research phase is recognised in profit or loss in the year in which it is incurred. Expenditure on the development phase is capitalised only if all of the following conditions are satisfied:  it is technically feasible to complete the intangible asset so that it will be available for use;  management intends to complete the intangible asset, and use or sell it;  it can be demonstrated how the intangible asset will generate economic benefits;  adequate technical, financial and other resources to complete the development and the ability to use or sell the intangible asset; and  the expenditure attributable to the intangible asset during its development phase can be reliably measured.

Other development expenditures that do not meet the conditions above are recognised in profit or loss in the year in which they are incurred. Development costs previously recognised as expenses are not recognised as an asset in subsequent year. Capitalised expenditure on the development phase is presented as development costs in the balance sheet and transferred to intangible assets at the date that the asset is ready for its intended use.

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CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (Continued) (15) Goodwill Goodwill is recognised at the excess of the cost of a business combination involving enterprises not under common control over the interest in the fair value of the acquirees‘ identifiable net assets acquired in the business combination as at the acquisition date.

(16) Long-term prepaid expenses

Long-term prepaid expenses include the expenditure for improvements to fixed assets under operating leases, and other expenditures that have been made but should be recgonised as expenses over more than one year in the current and subsequent periods. Long-term prepaid expenses are amortised on the straight-line basis over the expected beneficial period and are presented at actual expenditure net of accumulated amortisation.

(17) Impairment of long-term assets

Fixed assets, construction in progress, intangible assets with finite useful lives, investment properties measured using the cost model and long-term equity investments in subsidiaries, joint ventures and associates are tested for impairment if there is any indication that an asset may be impaired at the balance date. If the result of the impairment test indicates that the recoverable amount of the asset is less than its carrying amount, a provision for impairment and an impairment loss are recognised for the amount by which the asset‘s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset‘s fair value less costs to sell and the present value of the future cash flows expected to be derived from the asset. Provision for asset impairment is determined and recognised on the individual asset basis. If it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of a group of assets to which the asset belongs is determined. A group of assets is the smallest group of assets that is able to generate independent cash inflows.

Goodwill that is separately presented in the financial statements is tested at least annually for impairment, irrespective of whether there is any indication that it may be impaired. In conducting the test, the carrying value of goodwill is allocated to the related asset groups or groups of asset groups which are expected to benefit from the synergies of the business combination. If the result of the test indicates that the recoverable amount of an asset group or group of asset groups, including the goodwill allocated, is lower than its carrying amount, the corresponding impairment loss is recognised. The impairment loss is first deducted from the carrying amount of goodwill that is allocated to the asset group or group of asset groups, and then deducted from the carrying amounts of other assets within the asset groups or groups of asset groups in proportion to the carrying amounts of other assets.

Once the above asset impairment loss is recognised, it will not be reversed for the value recovered in the subsequent periods.

(18) Borrowing costs

The borrowing costs that are directly attributable to the acquisition and construction of a fixed asset that needs a substantially long period of time of acquisition and construction for its intended use commence to be capitalised and recorded as part of the cost of the asset when expenditures for the asset and borrowing costs have been incurred, and the activities relating to the acquisition and construction that are necessary to prepare the asset for its intended use have commenced. The capitalisation of borrowing costs ceases when the asset under acquisition or construction becomes ready for its intended use, the borrowing costs incurred thereafter are recognised in profit or loss for the current year. Capitalisation of borrowing costs is suspended during periods in which the acquisition or construction of a fixed asset is interrupted abnormally and the interruption lasts for more than 3 months, until the acquisition or construction is resumed.

For specific borrowings that have been taken out for the acquisition or construction of qualifying assets, the amount of interest to be capitalised are the actual interest expense incurred on that borrowing for the period less any interest earned from depositing the unused borrowed funds in the banks or any investment income arising on the temporary investment of those funds.。

For general borrowings that have been taken out for the acquisition or construction of qualifying assets, the amount of interest to be capitalised are determined by applying a capitalisation rate of general borrowings to the weighted average of the excess amounts of cumulative expenditures on the asset over the amounts of specific borrowings during the capitalisation period.

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CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 四 Summary of significant accounting policies and accounting estimates (Continued) (19) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred, and subsequently stated at amortised cost using the effective interest method. Borrowings of which the period is within one year (including one year) are classified as the short-term borrowings, and the others are classified as long-term borrowings.

(20) Employee benefits

Employee benefits mainly include wages or salaries, bonuses, allowances and subsidies, staff welfare, social security contributions, housing funds, labour union funds, employee education funds and other expenditures incurred in exchange for service rendered by employees.

The Group also provided supplementary pension subsidies to certain retired employees. Such supplementary pension subsidies are considered to be defined benefit plans as the Group is obligated to provide post-employment benefits to these employees. The defined benefit plans is the present value of the defined benefit obligation at the balance sheet date, together with adjustments for unrecognized actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent qualified actuaries using the projected unit credit method. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of 10% of the defined benefit obligation are charged or credited to the consolidated income statement immediately. The liability recognized in the consolidated balance sheet in respect of these defined benefit plans is the present value of the defined benefit obligation at the balance sheet date, together with adjustments for unrecognized actuarial gains or losses and past service costs.

Several subsidiaries in the Group also provided medical benefits to retired employees. The cost of such benefit is calculated using the same accounting policy according to the employment term as defined benefits plans.

Dismissal welfare and internal retirement plans in this group are recognized when the employee has reached an agreement with terminate terms or be informed the terms. The group recognizes the dismissal welfare when ending a contract of the existing worker according to a detailed plan and do not withdraw. The dismissal welfare is calculated by benefited employees when voluntary dismissal is encouraged. Terms of termination and earlier retirement will be different depending on his position, years of service and the local area.

Except for compensation for the employee relations removal, employee salaries are recognized during the service period and relevant asset and cost are assigned to beneficial object.

(21) Provisions

Provisions for product warranties, onerous contracts etc. are recognised when the Group has a present obligation, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the obligation can be measured reliably.

A provision is initially measured at the best estimate of the expenditure required to settle the related present obligation. Factors surrounding a contingency, such as the risks, uncertainties and the time value of money, are taken into account as a whole in reaching the best estimate of a provision. Where the effect of the time value of money is material, the best estimate is determined by discounting the related future cash outflows. The increase in the discounted amount of the provision arising from passage of time is recognised as interest expense.

The carrying amount of provisions is reviewed at each balance sheet date and adjusted to reflect the current best estimate.

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(22) Revenue recognition

Revenue is recognised when the economic benefits associated with the transaction will flow to the Group, the related revenue can be reliably measured, and the specific revenue recognition criteria have been met for each type of the Group‘s activities as described below:

(a) Sale of goods

Revenue from the sale of goods shall be recognized only when all of the following criteria have been met:

 The Group has transferred to the buyer the significant risks and rewards of ownership relevant to the goods in questions;  The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;  The relevant amount of revenue can be measured reliably;  It is highly probable that the economic benefits related to the transaction will flow into the Group;  andThe relevant costs incurred or to be incurred can be measured reliably.

(b) Construction contracts

(i) If the outcome of a construction contract can be reliably estimated on the balance sheet date, the contract revenue and contract costs shall be recognized using the percentage of completion method. The term "percentage of completion method" refers to a method by which the contractor recognizes its revenues and costs in proportion to the stage of completion of the contracted project. The stage of completion of the contracted project is determined by proportion of the aggregate cost incurred to the estimated contract cost.

The outcome of a fixed price contract can be estimated reliably when all of the following conditions are concurrently met:  The total contract revenue can be measured reliably;  It is highly probable that the economic benefits related to the contract will flow into the Group;  The relevant costs incurred can be identified clearly and measured reliably; and  Both the stage of completion and costs necessary to complete the contract can be measured reliably.

The outcome of a cost plus contract can be reliably estimated when the following conditions are concurrently met:  It is highly probable that the economic benefits related to the contract will flow into the Group;  The relevant costs incurred can be identified clearly and measured reliably.

On the balance sheet date, the contract revenue for the current year shall be recognized on the basis of the total contract revenues multiplied by the percentage of completion less the total contract revenue recognized in previous years. Similarly, the contract expenses for the current year shall be recognized on the basis of the total estimated contract costs multiplied by the percentage of completion less the total contract expenses recognized in previous years. Revenue resulting from variations to the contract, claims, and incentive payments are recognised when accepted by the other party.

(ii) When the outcome of a construction contract cannot be estimated reliably, the Group shall:

 Where contract costs can be recovered, the contract revenue shall be recognized only to the extent that contract costs incurred are expected to be recovered, with the contract costs recognized as expenses in the year in which they are incurred;  Where contract costs cannot be recovered, these costs shall be recognized as expenses promptly when incurred and no contract revenue may be recognized.

(iii) If the contract is likely more than the total cost of the contract revenue, the expected losses immediately recognized as expenses.

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(22) Revenue recognition (Continued)

Revenue from the rendering of services shall be recognized only when all of the following criteria have been met:  The total contract revenue can be measured reliably;  It is highly probable that the economic benefits related to the contract will flow into the Group;  The relevant costs incurred can be identified clearly and measured reliably; and  Both the stage of completion and costs necessary to complete the contract can be measured reliably.

(ii) When the outcome of rendering of services cannot be estimated reliably, the Group shall:

_  Where rendering costs can be recovered, the rendering revenue shall be recognized only to the extent that rendering costs incurred are expected to be recovered, with the rendering costs recognized as expenses in the year in which they are incurred;  Where rendering costs cannot be recovered, these costs shall be recognized as expenses promptly when incurred and no rendering revenue may be recognized.

(d) Transfer of asset use rights

Revenue from transfer of asset use rights comprises mainly interest income, royalty income and income from operating lease. These shall be recognized only when all of the following criteria have been met:

 It is highly probable that the economic benefits related to the transaction will flow into the Group;  The relevant amount of revenue can be measured reliably.

Interest income is recognised on a time-proportion basis using the effective interest method.

Royalty income is recognized based on the terms and conditions of the contract or agreement.

Income from an operating lease is recognised on a straight-line basis over the period of the lease.

(e) Mining

Revenue from mining is recognised when the Group has transferred to the buyer the significant risks and rewards of ownership relevant to the goods and the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold.

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(22) Revenue recognition (Continued)

(f) Sales of properties

Revenue from sales of properties where buyers have little or no influence on the design of the properties is recognised when the risks and rewards are transferred to the buyers, which occurs when the construction of the properties have been completed and the properties have been delivered to the buyers pursuant to a sales agreement, and the Group retains neither continuing managerial involvement to the degree usually associated with the ownership nor effective control over the properties sold.

Revenue from sales of properties where buyers can determine or have a significant influence on the design and structure of the properties shall be accounted for as revenue from construction contract. (g) Construction-business-transfer (" BOT ") business related income confirmation

Revenues and expenses during construction period are recognized in accordance with the construction contract .After the completion of the project, follow-up revenues are recognized in accordance with the general principals.

(23) Government grants

Government grants are assistance by government in the form of transfers of monetary or non-monetary assets. They include tax rebates and financial subsidies.

Government grants shall be recognised when there is reasonable assurance that the Group will comply with the conditions attached to the grants and the grants will be received. Monetary grants are measured at the amount received or receivable from the Government. Non-monetary grants are measured at fair value.

Government grants related to assets are initially recognised as deferred income and subsequently amortised as income on a systematic and rational basis over the useful life of the asset.

Government grants related to income are government grants other than those related to assets. These grants are initially recognised as deferred income and subsequently amortised as income over the periods necessary to match them with the related costs which they are intended to compensate, on a systematic basis. A government grant that becomes receivable as compensation for expenses or losses already incurred shall be recognised as income immediately.

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(24) Income taxes

(a) Deferred tax assets and deferred tax liabilities

Deferred tax assets and deferred tax liabilities are calculated and recognised based on the differences arising between the tax bases of assets and liabilities and their carrying amounts (temporary differences). Deferred tax asset is recognised for the deductible losses that can be carried forward to subsequent years for deduction of the taxable profit in accordance with the tax laws. No deferred tax liability is recognised for a temporary difference arising from the initial recognition of goodwill. No deferred tax asset or deferred tax liability is recognised for the temporary differences resulting from the initial recognition of assets or liabilities due to a transaction other than a business combination, which affects neither accounting profit nor taxable profit (or deductible loss). At the balance sheet date, deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled.

Deferred tax assets are only recognised for deductible temporary differences, deductible losses and tax credits to the extent that it is probable that taxable profit will be available in the future against which the deductible temporary differences, deductible losses and tax credits can be utilised.

Deferred tax liabilities are recognised for temporary differences arising from investments in subsidiaries, joint ventures and associates, except where the Group is able to control the timing of the reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. When it is probable that the temporary differences arising from investments in subsidiaries, joint ventures and associates will be reversed in the foreseeable future and that the taxable profit will be available in the future against which the temporary differences can be utilised, the corresponding deferred tax assets are recognised.

Deferred tax assets and liabilities are offset when:  The deferred taxes are related to the same tax payer within the Group and the same taxation authority; and,  That tax payer has a legally enforceable right to offset current tax assets against current tax liabilities.

(b) Income tax expense

Income tax expenses include current income tax and deferred income tax.

(25) Leases

A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. An operating lease is a lease other than a finance lease.

(a) Operating leases

Lease payments are recognised on a straight-line basis over the period of the lease when the Group is a lessee, and are either capitalised as part of the cost of related assets, or charged as an expense for the current year.

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CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (Continued) (24) Income taxes (Continued) (b) Finance leases

The leased asset is recorded at the amounts equal to the lower of the fair value of the leased asset and the present value of the minimum lease payments. The difference between the recorded amount of the leased asset and the minimum lease payments is accounted for as unrecognised finance charge and is amortised using the effective interest method over the period of the lease. A long-term payable is recorded at the amount equal to the minimum lease payments less the unrecognised finance charge.

(26) Profit distribution Proposed profit distribution is recognised as a liability in the year in which it is approved by the shareholders‘ meeting.

(27) Preparation of consolidated financial statements

The consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries.。

Subsidiaries are consolidated from the date on which the Group obtains control and are de-consolidated from the date that such control ceases. For a subsidiary that is acquired in a business combination involving enterprises under common control, it is included in the consolidated financial statements from the date when it, together with the Company, come under common control of the ultimate controlling party. The portion of the net profits realised before the combination date is presented separately in the consolidated income statement.

In preparing the consolidated financial statements, where the accounting policies and the accounting periods are inconsistent between the Company and subsidiaries, the financial statements of subsidiaries are adjusted in accordance with the accounting policies and accounting period of the Company. For subsidiaries acquired from a business combination involving enterprises not under common control, the individual financial statements of the subsidiaries are adjusted based on the fair value of the identifiable net assets at the acquisition date.

All significant inter-group balances, transactions and unrealised profits are eliminated in the consolidated financial statements. The portion of a subsidiary‘s equity and the portion of a subsidiary‘s net profits and losses for the period not attributable to Company are recognised as minority interests and presented separately in the consolidated financial statements within equity and net profits respectively.

In the consolidated financial statements, if the minority shareholders of subsidiary share a current loss larger than the beginning balance during the period, the remaining balance shall be offset against the minority interest.

(28) Held for sale and discontinued operation

A component is classified as held for sale when all of the following conditions are satisfied: (1) the Group has made a resolution on disposal of this component; (2) the Group has entered into an irrevocable agreement with the transferee to transfer the component; and (3) the transfer will be completed within one year.

Assets that are held for sale (exclude financial assets and deferred tax assets) are presented in other current assets at the lower of the carrying amount and the fair value less costs to sell. An excess of the carrying amount over the fair value less costs to sell is accounted for as an impairment loss.

Discontinued operation is a component of the Group that either has been disposed of or is classified as held for sale, and can be distinguished from other components within the Group in business operation and in preparation of financial statements.

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(29) Segment information

The Group identifies operating segments based on the internal organisation structure, management requirements and internal reporting system, and discloses segment information of reportable segments which is determined on the basis of operating segments.

An operating segment is a component of the Group that satisfies all of the following conditions: (1) the component is able to earn revenues and incur expenses from its ordinary activities; (2) whose operating results are regularly reviewed by the Group‘s management to make decisions about resources to be allocated to the segment and to assess its performance, and (3) for which the information on financial position, operating results and cash flows is available to the Group. If two or more operating segments have similar economic characteristics and satisfy certain conditions, they are aggregated into one single operating segment.

(30) Safety production costs

The group will recognize safety production costs according to the stipulations of ― assignment of high risk industry enterprise‘s safety production cost financial management interim measure‖ and ―high risk industry enterprise‘s safety production cost financial management interim measure‖ by treasury department and State Administration of Production Safety Supervision and Management. Safety production costs are specially used for improving and perfecting condition of work safety for the enterprise.

When the group recognizes safety production costs, it shall be included in the expense section or current profits and losses of relevant products, and corresponding special stored fund is added. When group uses the accrued safety production cost, expenditure can direct offset special stored fund. If the cost will be capitalized, it shall be aggregated in construction in progress at first, and transfer to fixed asset when the project is finished. The cost shall offset special stored fund and accumulated depreciation cost will be recognized at the same amount. No more depreciation expense will be recognized in the future.

(31) Important accounting estimate and its crucial assumption

The critical accounting estimates and key 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 outlined below:

(a) Construction contract

The revenues of each contract will be recognized on the basis of the ―percentage-of-completion method‖ (contract cost shall be estimated by management). If the result of construction contract can not be reliably estimated, the revenues of the contract will be recognized according to the retrieved actual contract cost and recognize contract expense as occurred, when contract cost can be retrieved; recognize the cost as contract expense as occurred when contract cost can not be retrieved. If the cost of contract is likely to be greater than total contract revenue, expected loss shall be immediately recognized, and full amount of impairment loss is recognized. Because of special business nature of construction contract, contract date and completion date usually belong to different accounting period. During implementing the contract, the group‘s management will regularly review budgetary contractual revenue, budgetary contract cost, percentage of completion and corresponding cost incurred for contract. The numbers shall be changed if situation changes. This amendment may lead to the increase or decrease in revenues and costs and will be reflected in the income statement during the construction period.

In 2011, disclosure of contracts that can not be reliably estimated will be shown in the annotation 8 (46).

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CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates(Continued) (31) Critical accounting estimates and key assumptions (Continued)

(b) Estimated useful life and net residual value of fixed assets

The Group‘s management determines the residual value, useful lives and related depreciation charges for its fixed assets based on the historical experience of the actual residual value and useful lives of fixed assets of similar nature and functions. Management will increase the depreciation charge where residual value or useful lives are less than previously estimated, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold. The fixed assets‘ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

At each balance sheet date, the Group will assess whether there is any indication that the assets are impaired. The recoverable amount of the Group's assets were determined by the higher of net value of fair value minus disposal costs and the present value of the expected future cash flow from the assets.

In estimating the recoverable amount, the management use a series of assumptions and estimations, including expected life-span of assets, expectations of the future market, future revenues and gross margins, discount rate, etc. In 2011, the Group conducted impairment tests on the assets that have probabilities of incurring impairment. The discount rate used in calculating the present value of expected future cash flow is 8%-18% after-tax. The Group recognised impairment provision of fixed assets and goodwill to some assets based on the expected recoverable amount. The Company recognised long-term equity investment provision based on the expected recoverable amount.

If management revises the revenue and gross margin that were used in the calculation of the future cash flows of asset groups and groups of asset groups, and the revised revenue and gross margin were lower than the one currently used, the Group would need to revise the recoverable amount of the long-term assets and assess whether impairment is necessary

If management revises the pre-tax discount rate that was used in the calculation of the future cash flows pre-tax discount rate, and the revised pre-tax discount rate was higher than the one currently used, the Group would need to revise the recoverable amount of the long-term assets and assess whether impairment is necessary.

If the actual revenue, margin or pre-tax discount rate is above or below the management‘s estimates, Impairment losses provided in previous years shall not be reversed.

(d) Income taxes

The Group is subject to income taxes in several jurisdictions. There are many transactions and calculations for which the ultimate tax determination is uncertain. Judgment is required in determining the provision for income taxes in each of these jurisdictions. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the year in which such determination is made.

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CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates(Continued) (31) Critical accounting estimates and key assumptions (Continued) (d) Income taxes (Continued)

If the management expects that taxable profit which can be used to offset temporary differences or losses is likely to incur in the future, recognise deferred tax assets related to the temporary differences or losses. The difference between the expected amount and the original estimation will impact the recognition of deferred tax asset. If the management expects that taxable profit can not be offset, then no deferred tax assets are recognized.

(e) Employee benefit obligation

The Group regards post-employment benefit plan as a liability. These post-employment obligations depend on a number of assumptions. The assumptions include discount rate, future wages and healthcare costs and other factors. The difference between the final outcome and initial estimates is amortized into the current year in accordance with the relevant accounting policy. Any significant changes to the above assumptions will impact the recognition of these post-employment obligations.

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Nothing

6 Taxation

(1) The types and rates of taxes applicable to the Group are set out below：

Type Taxable base Tax rate

Corporate income Taxable income 25% tax Value added tax Taxable value added amount (Tax payable is calculated 13% and17% (―VAT‖) using the taxable sales amount multiplied by the effective tax rate less deductible VAT input of current year) Business tax Taxable turnover 3%and 5% City maintenance Payment of value-added tax, business tax 5%and7% and construction and consumption tax tax Land appreciation Taxable value added amount of the transferred real estate 30%to 60% tax property

(2) Preferential tax policies and its approval documents

(a) Western Development Zone preferential tax policy (i) According to the Ministry of Finance‘s ‗Caishui [2001] No. 202‘, namely ‗Notification by the Ministry of Finance, State Administration of Taxation and General Administration of Customs of the PRC on the Western Development Zone preferential tax policy‘, document ‗Guoshuifa [2002] No.47‘ the Ministry of Finance, General Administration of Customs of the PRC, State Administration of Taxation jointly issued by caishui [2011] No. 58 ‗The Tax Policies Announcement on the Implementation of the Western Development Strategy "(hereinafter referred to as the" notice "), which clearly further support for the Development of the Western Region's package of tax policy. The implementation of the Notice was implemented since January 1, 2011. In order to encourage industrial enterprises located in the western regions, the "notice" regulated, from January 2011 to December 31, 2020, that these enterprises use the reduced income tax rate of 15%. Upon the approval of local tax bureau, the following companies can apply the Western Development Zone preferential tax treatment as follows:

In 2011, the following companies used the reduced tax rate of 15% to pay income tax:

Tibet Huaxia Mining Co. Ltd.,Tibet Huayi Trade Industry Co., Ltd., MCC construction group Co., Ltd、 MCC-SFRE Heavy Industry Equipment Co., Ltd., Chongqing CISDI Metallurgical Equipment System Integration Engineering Technology Research Center Co., Ltd, Chongqing CISDI Metallurgical Technology Co., Ltd., Chongqing CISDI Engineering Consulting Co., Ltd. CISDI Engineering Technology Co. Ltd, MCC Zhongye Chongqing Information CISDI technology Co., Ltd , Chongqing CISDI Property Management Co., Ltd, MCC Zhongye CISDI Co., Ltd , Ningxia Meili Paper Board Co., LTD, MCC Meili Paper Industry Co.,Ltd ,MCC Ningxia Industrial Co., Ltd

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(2) Preferential tax policies and its approval documents (Continued)

(a) Western Development Zone preferential tax policy (Continued)

(ii) According to the bureau of Ningxia Ning Guoshuifa [2009] No. 38, for Zhongye Meili Forestry Development Co., Ltd, the income of sales log shall be exempted from the enterprise income tax, and sales log shall be exempted from VAT from 2009 to 2011.

(iii) According to the bureau of Ningxia Ning Guoshuihan [2008] No.245, the Zhongye Meili Pulp Paper Co., LTD enjoys ―3 years full exemption, 2 years half exemption‖ the Western Development preferential tax policy from 2008 to 2012 , in 2011, the fourth year of the preferential policy, shall use 12.5% of tax rate to pay for enterprise income tax.

(b) Tax relief for coastal development zones, special economic zones and high and new technology enterprises

The following companies are categorised as high and new technology enterprises according to the technological office at provincial level and therefore enjoyed related preferential tax policies for high and new technology enterprises.

(i) From 2009 to 2011, the following companies used the tax rate of 15% to pay income tax: Shanghai Baoye Engineering Technology Corp., Ltd., Shanghai Zhida Electronic Co., Ltd, Wuhan Huaxia Fine-blanking Technology Co., Ltd., MCC Wuhan Surveying Geotechnical Research Institute Co., Ltd. Baotou Beilei New Technology Development Co., Ltd., MCC Huatian Nanjing Automation Engineering Co., Ltd., Luoyang Silicon Corporation Ltd., Beijing Yuanda International Project Management consulting Co., Ltd. MCC Eastern Engineering & Technology Corporation.

(ii) In 2011, the following companies used the tax rate of 15% to pay income tax:

Hunan Changtian Automation Engineering Co., Ltd., Zhongye Changtian International Engineering Co., Ltd.,Baotou Beilei Lianzhu Engineering Co., Ltd., Panzhihua 19 ye investigation design and Research Institute, Co.Ltd ,Beijing Beijing jingcheng colin environmental protection technology Co., Ltd, Zhongye Beijing Jingcheng (Yangzhou) Metallurgical Science and Technology Industry Co., Ltd, China 19 Smelting Group (Fangcheng Port) Equipment Structure Co., Ltd, Zhongye Welding Technology Co., Ltd , Beijing Sidamao Jingchenge Technology Development Co., Ltd, China Jingye Engineering Thchnology Co., Ltd. Beijing Yehe Technology Development limited liability company, Zhongye Building Research Institute Co., Ltd, Beijing Enfi Environmental Technology Co., Ltd, Beijing Enfi Environmental Protection Incorporation Ltd., Beijing New Vision Building Construction Technology Co., Ltd. , Beijing Jinwei Welding Material Co., Ltd, Nanjing Tianleng Energy technology Co. Ltd, Ma‘anshan MCC17 Engineering Science& Technology Co., Ltd., Beijing MCC Transportation Technology Development Co., Ltd.

(iii) From 2011 to 2013, the following companies used the tax rate of 15% to pay income tax: Zhongye Huatian Nanjing industrial furnace Co. Ltd.， Zhongye Huatian Engineering Co.,Ltd, Zhongye Huatian Maanshan Power Filter Co., Ltd.

(iv) According to guoshuihan [2009] No. 203 document from 2006 to 2011, MCC Communication Engineering Technology Co., Ltd ,China Enfi Engineering Corporation entitled to ―3 years full exemption,3 years half exemption‖ preferential tax treatment upon recognizing sales.

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(2) Preferential tax policies and its approval documents (Continued)

(b) Tax relief for coastal development zones, special economic zones and high and new technology enterprises (Continued) (v) Wuhan Yiye steel structure Co.Ltd, Cisdi Engineering Co.Ltd, Beijing Taifuli Driven Machine Co.Ltd, CISDI (Wuhan) Metallurgy construction Co.Ltd, Beijing Mettallurgical Equipment Research Design Institute Co.Ltd, Cisdi Building Research Co.Ltd, Chongqing Saidi Industrial Furnace Co.Ltd, Xian Electric Furnace Co.Ltd, Cisdi Saidi Engineering Technology Co.Ltd, Cisdi Jiaonai(Dalian) Engineering Technology Co.Ltd, Cisdi Jingcheng(Qinhuangdao) Engineering Technology Co.Ltd, Beijing Jingcheng Fenghuang Industrial Furnace Engineering Technology Co.Ltd, Beijing Jingcheng Huayu Building Design Co.Ltd, Beijing Jingcheng Dingyu Management system Co.Ltd, Cisdi Jingcheng Engineering Technology Co.Ltd, Beijing Jingcheng Star Technology Development Co.Ltd, Beijing Jingcheng Ruida Electrical Engineering Co.Ltd, Beijing Jingcheng Sairui Information Technology Co.Ltd, Beijing Jingcheng Chengrui Changcai Engineering Technology Co.Ltd, Beijing Jingcheng Zeyu Energy Environmental Protection Engineering Technology Co.Ltd, Beijing Jingcheng Jiayu Environmental Science Technology Co.Ltd, Cisdi Shenya Heavy-industry Equipment Co.Ltd, Cisdi No.17 Co.Ltd, Cisdi Lianzhu Engineering Technology Co.Ltd, Wuhan Yixin Electromechanical Co.Ltd, Cisdi Wuhan Siruipu Science Technology Co.Ltd, pay business tax at a rate of 15% in 2011, which is still in the period of validity for high technology enterprises.

(vi) Cisdi Engineering and Research Incorporation Limited, CCEPC，CISDI (Wuhan) Heavy Machinery Co.Ltd，CISDI (Wuhan) automation Co.Ltd，CISDI (Wuhan) Weishi Software Co.Ltd，CISDI (Wuhan) Weishi industrial furnace Co.Ltd pay business tax at a rate of 15% from 2009 to 2011, identified every three years.

(c) According to The Enterprise Income Tax Law of the People‘s Republic of China (PRC enterprise income tax) and the Enterprise Income Tax Law and Implementation Rules of the People‘s Republic of China executed since 1 January 2008，the enterprise which apply the lower tax rate policy will gradually apply the statutory tax rate after 5 years of the implementation of PRC enterprise income tax.

Shanghai Yejian Keao high-temperature material Co., Ltd., Shenzhen YJY Building Technology Co., Ltd,、Shenzhen Yiye Southern Industry Co., Ltd, and its sub-company in Shenzhen and Xiamen used income tax rate of 24% in 2011, enjoying preferential policies.

(d) Other preferential tax policies

(i) According to the requirement of the item 4 Article 88 of Enterprise Income Tax Law of the People Republic of China (Decree of state council No.512), and the relevant rules(Order of the President of PRC[2007] No. 63) about preferential tax policies on environmental protection projects:

According to the documents of ONEAD in Shanhaiguan district, Qinhuangdao city, Hebei Province, Qinhuangdao Zhongye Water Industry Co., Ltd, Funing Water Industry Co., Ltd are Environmental protection saving energy and water enterprises, and have been approved by tax bureau to apply the three-year exemption and three-year half exemption preferential tax policy, and still enjoyed this preferential tax policy in 2011.

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(2) Preferential tax policies and its approval documents (Continued)

(d) Other preferential tax policies (Continued)

MCC Shouguang Huatian Water Co., Ltd, MCC Shouguang Chengbei Water Co., Ltd, MCC Tianchang Huantian Water Co,. Ltd, MCC Liuan Water Co., Ltd, MCC Laian Huatian Water Co.,Ltd, MCC Shouguang Chengbei Water Co., Ltd, MCC Xuzhou Huatian Water Co,. Ltd, MCC Huangshi Water Co., Ltd, MCC Maanshan Water Co., Ltd, which owned by Huatian Engineering & Technology Corporation, engage in businesses of environmental protection supported by the PRC government and entitled to ―3 years full exemption, 3 years half exemption‖ preferential tax treatment upon recognising sales. These companies still enjoyed this preferential tax policy in 2011.

(ii) According to the preferential tax policy about taxable deduction of Comprehensive utilization of resources income from the Ministry of Finance and the State Administration of Taxation(Caishui[2008] No.117) and the preferential tax policy about taxable deduction of Comprehensive utilization of resources and other product added tax from the Ministry of Finance(Caishui[2008] No.156) ， enterprise producing Comprehensive utilization resources(Symbiosis associated mineral resources, waste water, waste gas, renewable resources) can enjoy the tax-free policy of the value added tax. And according to the preferential tax policy about taxable deduction of utilization of resources income from Trade commission of guangdong province([2010] No.132 and Hubei IRS[2009]No.185:

Dongguan Humen Motian Building Materials Co.Ltd enjoys the tax-free policy of the value added tax, and relevant tax on maintaining and building cities, extra-charge for education and local extra-charge for education in 2011.

Shanghai Baozhi slag comprehensive exploitation industry Co.Ltd enjoys the tax-free policy of the value added tax in 2011.

CISDI (Wuhan) Metallurgy construction Co.Ltd enjoys the tax-free policy of the value added tax on comprehensive utilization of resources in 2011

Handan Huaye new building materials Co.Ltd reduces 15% business income tax, enjoys the tax-free policy of the value added tax, and relevant tax on maintaining and building cities, extra-charge for education and local extra-charge for education in 2011.

(iii) According to the announcement of the Ministry of Finance and the State Administration of Taxation about relevant value added tax on Sewage Charge(Caishui[2001]No.97), Waterworks that are delegated by government and authorities enjoys the tax-free policy of the value added tax.

Zhejiang Chunnan sewage treatment Co.Ltd, Beijing Enfei Zhongshui Co.Ltd, Xiaogan Zhongshe water industry Co.Ltd, Beijing Zhongshe sewage treatment Co.Ltd, Lanzhou Zhongtou water industry Co.Ltd, Lanzhou Zhongtou water industry Co.Ltd, CISDI Qinhuangdao water industry Co.Ltd, Zhongzhi Funing water industry Co.Ltd enjoy the tax-free policy of the value added tax.

Xiaogan Zhongshe water industry Co.Ltd pays business income tax at the rate of 12.5%.

(iv) According to guoshuihan [2009]No. 212, the state administration of taxation caishui [2003] No. 137 and the relevant provisions of the local taxation bureau and requirement of the ‗Tax Policy Notification of The Transformed Scientific Research Institute‘ and the ‗Ministry of Finance and the State Administration of Taxation‘s Notification In Extending the Tax Policy Implementation Period of The Transformed Scientific Research Institute‘ (Caishui[2005] No.14), the subsidiaries of the Company which qualified as transformed Scientific Research Institute were approved by the local tax bureau to apply this preferential tax policy. The technical development income of MCC China International Engineering Co., Ltd. has been exempted from business tax since 2011, and used 5% of tax rate to pay its income tax.。 6 Taxation (Continued)

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(2) Preferential tax policies and its approval documents (Continued)

(d) Other preferential tax policies (Continued)

Zhongye Jiaonai Automation Co., LTD from 2008 to 2013 enjoys ―2 years full exemption, 3years half exemption‖ the preferential tax policy.The company software product sales value added tax enjoys returned collection preferential policy, tax rebate rate is 14%.

Zhongye sadie Chongqing Information Technology Co., Ltd from 2010 to 2014 enjoys ―2 years full exemption, 3years half exemption‖ the preferential tax policy. The company software product sales value added tax enjoys returned collection preferential policy, tax rebate rate is 14%.

In 2011, Xian Electric Furnace Institute Co., Ltd shall be exempt from the business tax.

(v) According to the Notice Caishui [2011] No. 4 issued by the ministry of finance and the state administration of taxation on continuing to implement the small profit-making enterprise income tax preferential policies ,Sichuan Panzhihua tax bureau directly under the state tax bureau Pan Guoshui through [2011] No. 01, enterprise income tax law article 28, article ninety-two of the detailed rules for the implementation of the relevant provisions of the small profit-making enterprise:

In 2011, Panzhihua 19 Smelting Group Jinding Industry &Trade Co., LTD、Wuhu 17 Ye Construction Co., LTD used 10% of tax rate to pay its income tax.

In 2011, ZhongYe refractory materials testing center、Hubei ZhongYe construction engineering detection Co., LTD used 20% of tax rate to pay its income tax.

From 2011to 2013, Zhongye Jilin City Built Research Realty Service Co., LTD used 20% of tax rate to pay its income tax.

(vi) According to the requirements of the ‗Enterprise Income Tax Law of the People‘s Republic of China‘, the ‗Enterprise Income Tax Law and Implementation Rules of the People‘s Republic of China‘ (Guowuyuan No. 512) and ‗Notification of the handicapped employment security fund‘ (Caishui [2009] No.70), enterprises which employ handicapped employees can deduct twice the employees‘ payroll expenses in calculating the taxable income. According to the number of the disabled ,company‘s income of the production of selling goods or providing processing, repairs and replacement services up to 50% of the total sum of the business of value added tax and business tax , the company can enjoy limitation refund value added tax .

In 2011，MCC Bao steel Technology Services Co., Ltd. China MCC 19 Group Co., Ltd., the real wages paid to the disabled can deduct twice the employees‘ payroll expenses before enterprise income tax

In 2011, Ningxia Meili Environmental Protection and Energy Saving Paper Group Co., Ltd, according to the enterprise number of disabled persons , can enjoy limitation refund value added tax .

(vii) According to the liao land tax [2009] No.111 "Official Reply about town land royalities of newly-built tax of Zhongye Beijing Jingcheng (Yingkou) Equipment Technology Co., ltd., ", Zhongye Beijing Jingcheng (Yingkou) Equipment Technology Co., ltd. From 2007 to 2012 shall be exempt from land royalities.

(viii) According to Wuhu tax official Caishui [2010] No. 42 relevant provisions of affordable housing, Wuhu Zhongye real estate Co., LTD in the project last period shall be exempted from the land royalties (originally by 12-15 yuan per square on) and according to policy property transfer book shall be exempted from the stamp duty.

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(2) Preferential tax policies and its approval documents (Continued)

(d) Other preferential tax policies (Continued)

(ix) According to the preferential tax policy about taxable deduction of technical development income from the Ministry of Finance and the State Administration of Taxation, the qualified enterprises are as follows (Continued):

The companies below continue to enjoy the preferential policy: CISDI Engineering (Shanghai) Co., Ltd., CISDI Engineering Co., Ltd., CISDI Industrial Furnace (Chongqing) Co. Ltd., MCC-SFRE Heavy Industry Equipment Co., Ltd., Zhongye Changtian International Engineering Co., Ltd., Huatian Engineering & Technology Corporation, MCC, Zhongye Huatian Power Filter, WISDRI Engineering & Research Incorporation Limited, China City Environment Protection Engineering Limited Company, WISDRI (Wuhan) Heavy Machinery Co., Ltd., WISDRI (Wuhan) Automation Co., Ltd., Wuhan WISDRI Soft Ltd., WISDRI (Wuhan) WIS Industrial Furnace Co., Ltd., MCC Baosteel Technology Service Co., Ltd., Baoye Industrial Technology Service (Shanghai) Co., Ltd., China MCC5 Group Corp. Ltd., CCTEC Engineering Co., Ltd., MCC Striptec Co., Ltd., MCC Eastech Co., Ltd., Yichang Heavy-duty Engineering Machinery Co., Ltd., China 19th Metallurgical Corporation, China 19th Anlagentechnik (Fangchenggang) Co., Ltd., Beilei High and New Technology Industrial Development (Baotou) Co., Ltd., Zhongye Dongfang Engineering Co., Ltd., Beilei Lianzhu Engineering (Baotou) Co., Ltd., Wuhan Research Institute of Metallurgical Construction, MCC, China First Metallurgical Group Co., Ltd., China MCC20 Group Corp., Ltd.

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(1) Principle in determining consolidation scope, basis & method of preparation of consolidated financial statements

Details See this note 2 above

(2) Basic information of subsidiaries included in the consolidation scope as at December 31, 2011

Details See this note 2 above

(3) Changes of consolidation scope as at 31 December 2011 are as follows:

Modification reasons

Business combination other Cheng de tiangong construction and design Co., LTD than common control combination Business combination other than Shanghai xuanxiang properties Co., LTD common control combination Business combination other than Wuhan iron and steel group design institute Co., LTD common control combination Business combination other than Meili and logistics Co., LTD common control combination The nanjing Yangtze river international shipping center development and construction company disposal TangHaiXian ChengWei real estate development Co., LTD disposal Sichuan agriculture GeShan much metal mining Co., LTD disposal Anhui HuaYe mining Co., LTD disposal Shanghai treasure into gas Co., LTD's smelting disposal WuYe kuntai (suzhou) real estate Co., LTD disposal Yichang ZhongYe heavy industry machinery Co., LTD disposal

(4) Please refer to Note 16 and Note 10 for detailed information of business combination and disposal of subsidiaries occurred in 2010.

The Group hold less than 50% of equity interest but are included in the consolidation scope of the Company as (5) at 31 December 2011 are as follows:

Voting holdings rights Proportio proportio Registere Into the merger n(%) n (%) d capital nvestment class Range reason

Range of handan reason south China furniture Co., LTD 40.50 40.50 962.80 389.93 3 Has substantial control Beijing kingway welding material Co., LTD 45.00 45.00 5,000.00 2,522.98 4 Has substantial control Beijing boon Philippines Other shareholders for environmental protection the social mobility Co., LTD 49.15 49.15 3,048.79 10,913.63 4 shares Other shareholders for the social mobility Huludao XinYe Co., LTD 33.77 33.77 111,013.33 42,378.51 4 shares Other shareholders for MCC Meili Paper Industry the social mobility Co.,Ltd 26.91 26.91 31,680.00 28,063.56 3 shares

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(6) The Group hold more than 50% of equity interest but are not included in the consolidation scope of the Company as at 31 December 2011 are as follows:

Voting right Equity held by interest the Reason for not held by the group(% Registered Investing included in the Group(%) ) capital amount Level consolidation scope

All shareholder are entitled to one veto power New Century Hotel Co., Ltd. 60.00 60.00 7,165.04 23,694.18 4 ballot The decision on operating CC (Xiangtan) Heavy Industrial activities need to be Equipment approved by two thirds of Co.,LTD. 51.00 51.00 25,000.00 17,699.19 4 the voting rights All shareholder are Tianjin SERI Machinery Equipment entitled to one veto power Corporation Ltd. 50.00 50.00 21,000.00 64,415.70 4 ballot All shareholder are Zhuhai Ka Du Hai Jun Real Estate entitled to one veto power Development Co., Ltd. 50.00 50.00 12,000.00 5,697.05 4 ballot The decision on operating activities need to be Tianjin Zhongji Equipment Manufacture approved by one second co., Ltd 50.00 50.00 20,000.00 9,131.12 5 of the voting rights The decision on operating activities need to be Qingdao Jinzhe Shuntai Real Estate Co., approved by three fifth of Ltd. 50.00 50.00 1,000.00 500.00 4 the voting rights The seat of board director Tangshan Caofei dian the 22nd Metallurgy changed and lost control Engineering Technology Co., Ltd 50.00 50.00 10,000.00 5,293.87 4 power. Baotou Zhongguixi Innovation energy The company has begun Co., Ltd 51.00 51.00 2,000.00 699.82 5 its liquidation procedures. Beijing Yenai Engineering Material Co., The company has begun Ltd 100.00 100.00 1,500.00 1,068.04 5 its liquidation procedures. Beijing Youya Construction Technology The company has begun Co., Ltd 50.00 50.00 0.00 62.69 4 its liquidation procedures. Wuhan Jingzhi Construction Engineering The company has begun United Company 53.76 53.76 0.00 4.31 4 its liquidation procedures. Beijing Zhijian Baixin New Technology The company has begun Company 100.00 100.00 0.00 50.00 4 its liquidation procedures. Xiamen Jingye Construction Engineering The company has begun Constracting Company 100.00 100.00 0.00 96.49 4 its liquidation procedures. Shanghai Pudong Keao construction Equipment New technology developing The company has begun department 100.00 100.00 0.00 60.00 4 its liquidation procedures. Non-operating Shanghai Baoye Pension Protection institutions, don‘t enjoy Service center 100.00 100.00 0.00 42.21 4 operation income all shareholder are MCC Paper Trading Co., ltd 70.00 70.00 0.00 490.00 4 entitled to one veto Non-operating institutions, don‘t enjoy Ma‘anshan the 17th Metallurgy Hospital 51.00 51.00 0.00 1,384.40 4 operation income The company has begun Shenzhen Longjing Stone Plant 80.00 80.00 0.00 165.42 4 its liquidation procedures. The company has begun Shenkan Rock Soil Engineering one 100.00 100.00 0.00 10.61 4 its liquidation procedures. The company has begun Haikou Xinye Industry Company 100.00 100.00 0.00 200.00 4 its liquidation procedures.

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CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 7 The preparation of the consolidated financial reports (Continued) (7) Subsidiaries that are no longer included in the consolidation scope as at 31 December 2011 are as follows:

Reason for no longer Equity interest included in held by the Voting right the Registration Business Natu Group(%) held by the consolidation address re (%) Group (%) (%) scope

Nanjing Changjiang international Shipping Center Development and Construction Co., Real estate ltd Nanjing development 100.00 100.00 Disposal Tanghai County Shengwei Real Estate Tangshan, Real estate developing Co., Ltd Hebei development 100.00 100.00 Disposal Kangding county, Sichuan Resource Sichuan Geshan metallurgy Co., Ltd province development 51.00 51.00 Disposal Hefei city, Resource Anhui Huaye Mine industry Co., Ltd Anhui Province development 70.00 70.00 Disposal Seamless Shanghai Baoyeqi gas Co., ltd Shanghai cylinders 51.00 51.00 Disposal Real estate Wuzhi Kuntai (Suzhou) real Estate Co., Ltd Suzhou, Anhui development 52.00 52.00 Disposal Machinery process, No control po Yichang Zhongye Heavy Machinery Co.,Ltd Yichang manufacture 50.00 50.00 wer

(8) Special accounting policies of subsidiaries, joint ventures and associates

Subsidiaries, joint ventures and associates of the Group do not apply any special accounting policies for the year ended 31 December 2011.

(9) Restriction in transferring funds from subsidiaries to parent company

There is no restriction in transferring fund from subsidiaries to parent company for the year ended 31 December 2011.

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8 Notes to the consolidated financial statements

(1) Cash at bank and on hand

31 December 2011 31 December 2010 Foreign Foreign currency Exchange RMB currency Exchange RMB amount rate amount amount rate amount

Cash on handˉ RMB ― ― 3,686.07 ― ― 4,372.30 US dollar 92.31 6.3009 581.64 147.16 6.6227 974.58 Euro 8.90 8.1625 72.64 8.70 8.8065 76.63 Australian dollar 9.33 6.4093 59.82 5.62 6.7139 37.70 Others ― ― 775.74 ― ― 1,074.93 5,175.91 6,536.14 Cash at bank－ RMB ― ― 4,030,540.14 ― ― 3,420,682.76 US dollar 35,504.44 6.3009 223,709.91 43,113.73 6.6227 285,529.30 Euro 900.92 8.1625 7,353.77 6,511.15 8.8065 57,340.46 Australian dollar 1,696.91 6.4093 10,876.01 3,098.96 6.7139 20,806.10 Others ― ― 43,935.42 ― ― 160,136.66 4,316,415.25 3,944,495.28 Other cash balances－ RMB ― ― 448,549.43 ― ― 394,575.43 US dollar 443.00 6.3009 2,792.24 842.80 6.6227 5,581.61 Euro 491.00 8.1625 4,008.11 262.75 8.8065 2,313.87 Australian dollar 162.00 6.4093 1,039.56 75.69 6.7139 508.18 Others ― ― 4,728.66 ― ― 817.81 461,118.00 403,796.90

Total 4,782,709.16 4,354,828.32

The amount of restricted cash at bank and on hand and the reasons for restriction are disclosed in Note 8(22)。

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(2) Financial assets held for trading

31 December 2011 31 December 2010

Investments in equity instrument held for trading 35,198.23 0.00

(3) Notes receivable

31 December 2011 31 December 2010

Bank acceptance notes 1,137,783.94 1,041,179.44 Trade acceptance notes 57,329.44 12,670.86 1,195,113.38 1,053,850.30

In December 31st, the notes receivable includes discounted commercial acceptance bills of exchange with resource due RMS0.00 (In December 31st 2010：RMB0.0 元), the received discounted cash confirm to be short term borrowings (In December 31st 2010：RMB0.0 元)(notes 8 (23)。

The amount of restricted notes receivable and the reasons for restriction are disclosed in Note 8 (22).

(4) Accounts receivable

31 December 2011 31 December 2010

Accounts receivable 4,895,256.66 4,144,993.40 Deduct：Provision for bad debts 444,662.30 370,480.66 4,450,594.36 3,774,512.74

(a) The ageing of accounts receivable bad debts are analysed below:

31 December 2011 31 December 2010

Within 1 year 3,495,526.11 2,935,634.41 1 to 2 years 869,118.37 745,726.69 1 to 2 years 264,580.50 253,543.69 3 to 4 years 115,100.02 112,687.49 4 to 5 years 73,087.25 26,124.60 Over 5 years 77,844.41 71,276.51 4,895,256.66 4,144,993.39

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(4) Accounts receivable (Continued)

(b) The accounts receivable analyzed as below according to classification:

31 December 2011 31 December 2010 Amount Accou Provision Accru Amount Accou Provision Accr nting for bad ing nting for bad uing for debts perc for debts perc rema enta remai enta ining ge ning ge (%) (%) (%) (%)

Single amount is material and accrue provision for bad debts individually 52,578.09 1.07 3,095.38 5.89 42,802.81 1.03 2,123.13 4.96 Accruing provision for bad debts according to set 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Set 1 3,376,092.09 68.97 416,996.7612.35 2,935,409.37 70.82 356,732.84 12.15 Set 2 1,426,891.79 29.15 0.00 0.00 1,129,441.55 27.25 0.00 0.00 Single amount is immaterial, but make individual provision for bad debts 39,694.69 0.81 24,570.1661.90 37,339.66 0.90 11,624.69 31.13 4,895,256.66 100.00 444,662.30 4,144,993.39 100.00 370,480.66

(c) In December 31st 2011，the amounts receivable for single material amount with individual provision for bad debts analyze as below:

provision for Accruing Amount bad debts percentage (%) Reason

Obtain evidence, specific Unit 1 23,328.09 1,440.33 6.17 identification Obtain evidence, specific Unit 2 18,110.33 1,205.76 6.66 identification Obtain evidence, specific Unit 3 11,139.67 449.29 4.03 identification 52,578.09 3,095.38

(d) According to the accruing provision for bad debts in set 1, analyze the set with aging debt as below :

31 December 2011 31 December 2010 Amount Account Provision Accrui Amount Accoun Provisio Accrui ing for for bad ng ting n for bad ng remaini debts perce for debts percent ng (%) ntage remai age (%) (%) ning (%)

Within 1 year 2,327,224.23 68.94 116,361.22 5.00 1,981,427.30 67.50 99,071.37 5.00 1 to 2 years 588,512.33 17.43 58,851.23 10.00 536,528.54 18.28 53,652.85 10.00 1 to 2 years 222,736.28 6.60 66,820.88 30.00 231,654.41 7.89 69,496.32 30.00 3 to 4 years 100,422.54 2.97 50,211.27 50.00 93,233.21 3.18 46,616.61 50.00 4 to 5 years 62,222.74 1.84 49,778.19 80.00 23,351.08 0.79 18,680.86 80.00 Over 5 years 74,973.97 2.22 74,973.97 100.00 69,214.83 2.36 69,214.83 100.00 3,376,092.09 100.00 416,996.76 2,935,409.37 100.00 356,732.84

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(4) Accounts receivable (Continued)

(e) In December 31st 2011，the immaterial amounts of receivable with individual provision for bad debts analyze as below:

provision for Accruing Amount bad debts percentage (%) Reason

Provision was made based on management assessment of current Unit 1 9,525.37 2,614.18 27.44 available evidence Provision was made based on management assessment of current Unit 2 7,562.08 1,126.85 14.90 available evidence Provision was made based on management assessment of current Unit 3 5,039.56 5,039.56 100.00 available evidence Provision was made based on management assessment of current Unit 4 3,230.36 3,230.36 100.00 available evidence Provision was made based on management assessment of current Unit 5 2,047.66 2,047.66 100.00 available evidence Others 12,289.66 10,511.55 85.53 39,694.69 24,570.16

(f) On December 31st 2011，the group has no reversals of bad debts for fully or large percentage of provision.

(g) The write-off of accounts receivable in current year are analysed as follows:

Related party Nature Amount Reason transaction

Amounts due from Unit1 contract work 1,050.49 Uncollectable No Amounts due from Unit2 sales of goods 744.74 Uncollectable No Amounts due from Unit3 contract work 613.06 Uncollectable No Amounts due from Unit4 contract work 607.58 Uncollectable No Amounts due from Unit5 contract work 600.61 Uncollectable No Amounts due from Unit6 contract work 334.67 Uncollectable No Amounts due from Unit7 contract work 202.81 Uncollectable No Others 1,299.76 Uncollectable No 5,453.72

(h) Please describe the transferred accounts receivable with due bills this year one by one.

(i) The amount of restricted notes receivable and the reasons for restriction are disclosed in Note 8 (22).

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(5) Advances to suppliers

(a) Analyze the prepaid amount aging as below：

31 December 2011 31 December 2010 Amount Percentage (%) Amount Percentage (%)

Within 1 year 1,669,188.17 81.05 1,965,034.30 81.77 1 to 2 years 246,631.95 11.97 294,927.34 12.27 2 to 3 years 89,942.18 4.37 93,580.80 3.89 Above 3 years 53,841.96 2.61 49,843.13 2.07 2,059,604.26 100.00 2,403,385.57 100.00

(b) 5 largest advances to suppliers ageing over 1 year are analysed as follows:

Ageing over Reason for no Debtor Ending balance 1 year settlement

Land collection center in Qinhuangdao Development Amounts due from Unit1 Zone 15,283 Within 2 years contract work Feibiao Construction co., Ltd in Qinhuangdao Development Amounts due from Unit2 Zone 14,512 With 2 years contract work Mayangxi Ecological Tourism Zone Management Committee Unit3 in Changtai County 14,382 4 to 5 years prepay land bill Land trading Center in Wuhan Unit4 City 10,000 Within 2 years prepay land bill Wuhan Construction Unit5 Engineering Co., Ltd 9,170 3 to 4 years prepay land bill

(6) Interest receivable

31 December 2011 31 December 2010

Bank interest of fixed deposit 234.13 201.63

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(7) Dividends receivables

Related Increased Decrease funds de 31st Dec, this y d this 31Dec Reasons for not drawing preciated 2010 ear year 2011 back or not

dividends receivables for debt age within 1 year Among which First Metallurgical Wuhan Zhonghe Engineering Quality inspection Co.Ltd 13.60 0.00 13.60 0.00 Not applicable No Kaidi Electric Power Co.,Ltd 0.00 65.54 65.54 0.00 Not applicable No Nanjin Iron Steel Co.Ltd 0.00 22.40 22.40 0.00 Not applicable No Tijin Estate Development Group 0.00 5.00 5.00 0.00 Not applicable No Bank of Huludao 0.00 120.00 120.00 0.00 Not applicable No Bao Steel Finance Co.,Ltd 0.00 468.63 468.63 0.00 Not applicable No Luan Conty(Heibei Province) Jidong Not applicable No Cement Co.,Ltd 0.00 773.72 773.72 0.00 Tianjin Jidong Cement Co.,Ltd 0.00 90.00 90.00 0.00 Not applicable No Luan county of Tangshan Sijiaying Iron Not applicable No Ore Development Co.Ltd 0.00 2,889.60 2,889.60 0.00 Shanghai Zhongye Xiangteng Investment Not applicable No Co.,Ltd 0.00 6,492.14 6,492.14 0.00 Panzhihua Steel Group Finance Co.,Ltd 0.00 1.41 1.41 0.00 Not applicable No Shanghai Bao Steel Construction Not applicable No Supervision Co.,Ltd 0.00 192.89 192.89 0.00 Panzhihua Steel Group Finance Co.,Ltd 0.00 0.97 0.97 0.00 Not applicable No Bank of Communications Co.,Ltd 0.00 0.47 0.47 0.00 Not applicable No Chongqing Kangda Environment Not applicable No Protection Co.,Ltd 117.30 0.00 117.30 0.00 Beijing Yenai Engineering Material Not applicable No Co.,Ltd 0.00 225.01 225.01 0.00 New Metallurgy Hi-Tech Group Co.,Ltd 0.00 37.03 37.03 0.00 Not applicable No Wuhan Hanwei Refining Technology Not applicable No Co.,Ltd 0.00 22.00 22.00 0.00 Wuhan Yixin Machinery Co.,Ltd 0.00 12.35 12.35 0.00 Not applicable No Hankou Bank Co.,Ltd 0.00 2.69 2.69 0.00 Not applicable No Beijing New Century Hotel 83.26 580.10 663.36 0.00 Not applicable No Tangshan Xinpeng Construction No Engineering detection Co.,Ltd Declared to be distributed, but 12.80 0.00 0.00 12.80 not paid due to tight finance Shahe Storage &Transportation Co.,Ltd 0.00 13.50 13.50 0.00 Not applicable No Ma Anshan Hutian Printing Co.,Ltd Declared to be distributed, but No 0.00 11.03 0.00 11.03 not paid due to tight finance Anshan Sanye Swimming Pool Co.,Ltd Declared to be distributed, but No 0.00 4.38 2.21 2.17 not paid due to tight finance Shanghai Libo Labor Service Co.,Ltd 0.00 6.39 6.39 0.00 Not applicable No Handan Huaye Industry & trade Co.,Ltd 0.00 0.36 0.36 0.00 Not applicable No 226.96 12,037.61 12,238.57 26.00

dividends receivables for debt age over 1 year

Include: Tianjin Seri Machinery Equipment Declared to be distributed, but Corporation 1,600.00 0.00 0.00 1,600.00 not paid due to tight finance No Declared to be distributed, but Wuhan Zhongjian Enterprises Ltd.,Co 33.60 0.00 0.00 33.60 not paid due to tight finance No Declared to be distributed, but Heibei Steel Co.,Ltd 18.98 0.00 0.00 18.98 not paid due to tight finance No Wuhan Goldman Sanchs Architecture Declared to be distributed, but Design Co.Ltd 13.50 0.00 0.00 13.50 not paid due to tight finance No 1,666.08 0.00 0.00 1,666.08 1,893.04 12,037.61 12,238.57 1,692.08

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CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 8 Notes to the consolidated financial statements(continued) (8) Other receivables 31 December 2011 31 December 2010

antecedent money and guaranty money 911,568.86 897,154.36 Loans to the affiliated party and the third party 151,794.89 200,818.66 Staff loans 62,154.67 73,666.91 Prepaid investment fund 0.00 260,569.70 Others 117,028.73 160,657.22 1,242,547.15 1,592,866.85 Less: bad debts 140,125.78 106,398.09 1,102,421.37 1,486,468.76

(a) The ageing of other receivables is analysed as below: 31 December 2011 31 December 2011 Within 1 year 694,032.91 825,811.54 1 to 2 years 190,215.50 449,105.15 2 to 3 years 135,165.30 132,846.30 3 to 4 years 82,759.16 73,976.64 4 to 5 years 34,401.05 10,673.34 Over 5 years 105,973.23 100,453.88 1,242,547.15 1,592,866.85

(b) The category of other receivables is analysed as below: 31 December 2011 31 December 2010 Balance Ratio Bad Provi Balance Ratio Bad Provis in total debts sion in debts ion amt(% ratio( total ratio( ) %) amt(% %) Significant amounts of other receivables using specific identification method for provision for bad debts 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Provision for bad debts in combination 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Combination 1 429,624.63 34.58 101,923.51 23.72 347,912.97 21.84 81,939.13 23.55 Combination 2 769,938.86 61.96 0.00 0.00 1,194,621.18 75.00 24,458.96 2.05 insignificant amounts of other receivables using specific identification method for provision for bad debts 42,983.66 3.46 38,202.27 88.88 50,332.70 3.16 0.00 0.00 1,242,547.15 100.00 140,125.78 1,592,866.85 100.00 106,398.09 (c) On 31 Dec 2011, the company has no other Significant amounts of other receivables using specific identification method for provision for bad debts

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CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 8 Notes to the consolidated financial statements(continued) (8) Other receivables (continued) (d) The ageing of other receivables of in combined provision for bad debts is analysed as below: 31 December 2011 31 December 2010 Balance Ratio in Bad Provisio Balance Ratio in Bad debts Provision total debts n ratio total ratio (%) amount (%) amount (%) (%)

Within 1 year 221,922.56 51.66 11,096.13 5.00 171,730.95 49.36 8,586.55 5.00 1 to 2 years 87,058.47 20.26 8,705.85 10.00 67,777.80 19.48 6,777.78 10.00 2 to 3 years 35,593.94 8.29 10,678.18 30.00 40,087.18 11.52 12,026.15 30.00 3 to 4 years 18,567.16 4.32 9,283.58 50.00 25,069.29 7.21 12,534.64 50.00 4 to 5 years 21,613.68 5.03 17,290.95 80.00 6,168.78 1.77 4,935.03 80.00 Over 5 years 44,868.82 10.44 44,868.82 100.00 37,078.97 10.66 37,078.98 100.00 429,624.63 100.00 101,923.51 347,912.97 100.00 81,939.13

On 31 Dec 2011, insignificant amount of other receivables using specific identification method for (e) provision for bad debts Provision Ratio Balance Bad Debt (%) Reason Unit 1 Accrued by the evidence 9,191.61 9,191.61 100.00 obtained Unit 2 Accrued by the evidence 3,330.64 3,330.64 100.00 obtained Unit 3 Accrued by the evidence 2,498.20 2,498.20 100.00 obtained Unit 4 Accrued by the evidence 2,405.46 2,405.46 100.00 obtained Unit 5 Accrued by the evidence 2,300.00 2,300.00 100.00 obtained Accrued by the evidence Others 23,257.75 18,476.36 79.44 obtained 42,983.66 38,202.27 (f) On 31 Dec 2011, the company has no full provision for bad debts, or significant amount of provision for bad debts of other receivables.

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(8) Other receivables (continued)

(g) Other receivables actually written off of this year, analysed as below:

Whether be generated Receivables prope from affiliated Loanee rties Amount reason transaction

Payment confirmed Unit 1 Other 30.83 to be uncollectable No Payment confirmed Unit 2 Other 17.88 to be uncollectable No Payment confirmed Unit 3 Other 16.30 to be uncollectable No Payment confirmed Unit 4 Other 12.53 to be uncollectable No Payment confirmed Unit 5 Other 12.14 to be uncollectable No Others 35.82 125.50

(h) No prepayments turn into other accounts receivable in this year.

(9) Inventories

(a) Inventories by category

31 December 2011 31 December 2010 Reduction r Reduction r balance eserves Book value balance eserves Book value

Raw material 703,618.43 39,850.34 663,768.09 820,331.89 16,692.29 803,639.60 Work in progress 360,973.76 12,305.64 348,668.12 363,697.32 3,823.91 359,873.41 Finished goods 564,815.07 24,271.19 540,543.88 461,836.80 19,839.34 441,997.46 Consumable items 67,503.52 2,786.55 64,716.97 58,712.83 84.81 58,628.02 Amounts due from customers for contract work 3,335,659.61 25,306.35 3,310,353.26 3,074,840.02 14,795.82 3,060,044.20 Properties under development (i) 5,485,249.39 842.19 5,484,407.20 4,166,892.02 0.00 4,166,892.02 Completed properties held for sale(ii) 428,022.05 299.88 427,722.17 361,116.63 620.54 360,496.09 Others 175,343.95 79.94 175,264.01 153,393.70 57.68 153,336.02 11,121,185.78 105,742.08 11,015,443.70 9,460,821.21 55,914.39 9,404,906.82

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CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 8 Notes to the consolidated financial statements(continued) (9) Inventories (continued) (a) Inventories by category (continued) (i) Cost of real estate development Predicted Predicted completion total 31 Dec. 31 Dec. Start time time investment 2011 2010 Nanjing Xiaguan riverside project 2010-09-01 2017-12-31 7,151,920.44 1,604,892.79 1,021,016.94 Chongqing Tieshanping project 2011-09-15 2015-12-31 350,000.00 171,377.06 110,266.24 Gengyang New city project of Fengrun district of Tangshan 2010-03-01 2020-12-31 1,055,000.00 161,858.32 39,339.05 Zhongye blue city of Dalian international business city 2010-10-30 2013-12-31 270,000.00 131,996.13 82,070.96 Zhoneye Rural world of Pi County Sichuang 2010-12-26 2015-12-31 365,000.00 128,404.84 69,271.95 Medium and low cost commercial housing in Lianhuacun Nanjing City 2009-06-30 2012-12-31 275,000.00 122,388.47 90,667.75 Chengdu Wenjiang Yuerong Land arrangement project 2010-01-30 2012-03-30 93,400.00 93,400.00 83,400.00 Zhongye xiangteng city square in Shangha 2009-02-20 2012-05-31 130,000.00 91,650.78 77,087.39 Zhongye Riverside International city Qiqihar 2010-10-16 2016-10-15 282,160.00 88,222.25 26,796.83 Sanbawang apartment Singapore 2010-12-01 2012-08-31 117,227.21 87,693.43 70,285.19 joint managing apartment of 11th Road in Yishun Singapore 2010-10-01 2012-07-31 119,240.29 86,517.64 74,477.05 Hengqin Headquarter building Development Co.,Ltd In Zhuhai 2012-03-15 2015-06-30 440,000.00 84,899.12 24,124.22 BeijingGuangdong Huayuan province Hotel Co.,Ltd 2010-03-01 2012-12-31 120,470.00 84,275.46 69,240.92 project of South of Yuhua Road of Pheonix new city in Tangshan district 2010-11-25 2016-04-01 394,800.00 80,070.08 65,030.54 Zhongye Beiluyuan project of north new district of Chongqing 2008-12-01 2012-06-19 108,000.00 76,739.85 57,325.65 Zhiye world trade center project in Baotou 2010-04-01 2015-11-05 299,000.00 74,362.76 26,213.93 First phase of Zhongye Chang‘an Dadu in Xi‘an 2011-03-15 2014-12-31 169,000.00 73,468.54 68,876.84 The project of return the TianjinTanggu west new city Qibu district to housing 2009-06-26 2012-06-25 158,000.00 72,666.83 117,879.53 South Ku district project of Baotou in Inner Mongolia 2011-08-01 2013-05-31 257,100.00 72,506.64 59,401.17 Tangshan Wutong Avenue development project 2008-01-25 2013-10-31 320,000.00 68,492.56 106,172.71 Zhongye blue city of Jingkou district Zhenjiang 2011-02-15 2015-12-01 193,954.00 66,018.18 33,868.44 land level development of southwest region of Nanjin Hexi district 2007-04-01 2014-12-31 1,613,359.10 64,691.19 40,637.16 Jiangna city of Gushan Tianjin 2007-07-26 2015-07-01 275,000.00 64,576.45 77,191.97 Zhongye Blue city of Fangshan district of Beijing 2012-02-15 2013-10-30 158,886.00 64,556.24 0.00 Big rubik cube projectin High-tech zone of Chengdu 2010-09-27 2016-12-31 660,000.00 63,758.38 56,649.67 Business park of Yantai 2011-08-08 2017-05-30 280,000.00 62,898.44 28,729.67 Taihang Avenue in Shijiangzhuang 2010-04-01 2012-08-31 267,285.77 62,433.36 127,100.17 United auto square of Zhaibei district in Shanghai 2009-06-29 2012-10-31 90,320.42 61,195.07 56,864.92 Kaixuan Project in Changchun 2011-04-01 2013-12-31 106,000.00 59,427.45 47,990.00 Zhongye sky city in Jiangning Nanjing 2010-07-31 2012-12-31 90,000.00 56,449.28 44,227.58 Shanghai Zhongye Maple county 2011-05-31 2013-12-28 88,058.00 53,831.61 43,393.03 Qinghuangdao Jade belt garden (original shore side Shangjing Garden) 2008-12-23 2015-06-01 410,000.00 50,878.57 44,578.65 Zhongye Yellowstone park in Qingshan district of Wuhan 2008-08-07 2016-01-14 187,473.00 49,520.56 46,006.57 Xinao Blue city in Changchun Jilin 2006-08-01 2013-05-01 119,141.00 43,536.15 24,508.39 Zhongye Love shore in Qingdao Economic and technology development zone 2009-05-01 2013-06-01 62,738.22 42,143.04 21,228.50 Yuepu Zhongye Shangyan in Baoshan district of Shanghai 2010-09-28 2012-08-01 65,000.00 41,523.96 3,240.26

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(9) Inventories (continued)

(a) Inventories by category (continued) Predicted Predicted completion total 31 Dec. 31 Dec. Start time time investment 2011 2010 Jiayu Neighborhood in Qinghuangdao Hebei Province 2011-12-21 2012-12-21 50,000.00 40,638.39 0.00 Paojiang G56-1 block in Shaoxing Zhejiang 2011-05-05 2014-11-30 144,000.00 39,719.49 899.91 Project of Yuepu Tayuan road in Baoshan district in Shanghai 2010-08-31 2012-04-30 56,000.00 38,250.58 22,797.72 Multi-purpose buildings in Caofeidian Tangshan 2008-02-10 2012-06-30 38,500.00 37,815.28 37,059.74 Zhongding Yuecheng project in Yushan district of Maanshan 2011-09-08 2016-09-08 150,000.00 36,453.69 390.60 Zhongye Chongqing morning in Chongqing 2010-07-05 2012-10-31 58,600.00 36,037.79 20,246.42 Jinjiazhuang Prefabricated housing in Anhui Maanshan 2009-12-26 2014-06-30 57,000.00 35,487.55 13,823.74 Zhongye happiness housing in Chongqing 2009-12-12 2012-06-30 36,489.00 34,014.45 23,036.90 Zhongye Kunting in Kunshan Jiangsu province 2010-07-10 2013-09-30 84,000.00 32,672.24 18,130.32 Jinfu Garden Affordable housing project in Maanshan 2010-06-01 2013-12-31 97,600.00 32,661.34 16,191.13 land arrangement of south region of Chengdu Chengguan Railway Xipu station 2010-01-30 2012-03-30 32,000.00 32,000.00 32,000.00 Haixi International city of Fujiang Zhangzhou 2008-05-18 2017-12-31 530,000.00 30,151.34 18,484.18 Joint managing apartment 7th road Singapore 2012-01-01 2013-12-31 216,786.24 29,448.75 0.00 Phase 1.1 of Zhongye Yuluan bay in Anshan Qianshan district 2010-04-01 2012-05-01 135,000.00 28,076.02 29,967.98 Sun ditch C、D Block district in Shunkou district of Lvshun Dalian 2012-03-01 2015-12-31 260,000.00 27,441.79 0.00 Nanjing Jianye district Zhongding Yaju project 2012-02-01 2013-06-02 45,000.00 27,064.19 0.00 Zhongding Garden In Nanjing 2008-03-01 2013-12-31 258,000.00 26,466.88 122,828.72 Qingshan Bishui Neighborhood in Jilin 2009-05-30 2012-10-30 87,000.00 25,595.79 36,334.23 Tangshan Tanghai Boulevard Neighborhood project 2010-03-01 2012-05-01 50,000.00 24,033.87 18,643.69 Hongkong south ring Nanli Project 2010-07-08 2013-12-31 34,000.00 23,277.41 21,244.10 Zicui Gaoqing garden Shanghai Pudong 2009-04-01 2012-12-31 24,500.00 23,254.84 19,857.35 Zhongye Shangyuan in Henan Xinyang 2011-03-08 2012-11-30 30,000.00 22,519.03 1,393.98 International business center B in Yangtai Shangdong 2013-03-01 2018-12-31 160,000.00 21,324.67 0.00 Yongtai Garden in Maanshan 2009-09-01 2012-04-30 24,000.00 20,589.69 7,139.00 Zhongye Wenqin Garden of Sifang district of Shandong Qingdao 2011-12-01 2013-12-01 102,674.00 20,360.67 0.00 Gaoshan prefabricated housing in Huashan District of Maanshan 2010-08-09 2012-02-01 31,770.00 19,722.94 2,555.00 Zhongye Yingju in Sifang district in Qingdao 2010-08-01 2012-12-31 34,037.00 19,650.80 259.20 Zhongye Yushan Shangyuan in Changshu 2009-06-20 2012-12-31 120,000.00 19,214.38 61,366.54 South Yintang combined prefabricated housing first phase, second phase, in Economic and technology zone in Maanshan 2011-03-06 2012-12-31 50,000.00 19,012.36 0.00 Guangong enterprises home club of Yucheng in Shanxi Province 2012-03-16 2015-12-31 83,500.00 18,613.28 17,789.37 Wuhan Zhongye Maple bay 2011-09-30 2012-12-31 45,000.00 17,729.49 11,530.57 Zhongye Xiangteng Elites Shangdu of Jiading distict in Shanghai 2011-04-01 2012-12-31 26,000.00 16,613.51 0.00 Residential of Ligu valley view garden in Changsha 2010-12-01 2013-12-31 86,000.00 16,487.97 15,957.66

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(9) Inventories (continued)

(a) Inventories by category (continued)

(i) Cost of real estate development (continued)

Predicted c Predicted to ompletion ti tal investm 31 Dec. 31 Dec. Start time me ent 2011 2010

Garden houses of home of Guangong enterprises club of Yuncheng City Shanxi province 2012-03-16 2015-12-31 91,600.00 15,929.15 15,072.27 St. Joe Davis Zhongye of Chengyang District of Qingdao 2009-09-28 2012-06-26 82,327.66 15,521.86 30,330.11 Zhongye Kaiyue famous estate of Heping district of Liaoning Province 2010-08-20 2012-12-31 32,883.00 13,398.37 9,668.17 Qingpu New city of Shanghai 2011-11-19 2013-08-31 188,932.00 13,288.77 0.00 Project around Shenyang Subway and Automotive parts East city 2011-04-01 2014-12-20 162,166.00 13,283.51 13,082.59 Chengdu Dujiangyan Weir Zhongye Weir view estate 2008-10-18 2012-03-31 62,108.80 12,430.90 9,037.68 Project of Shanghai Jinshan District Tinglin Town Tingshen east road block 2011-09-08 2012-12-31 18,151.00 11,346.51 0.00 Reform of nursery garden shanty towns in Taiyuan Shanxi Province 2008-02-01 2012-12-01 23,500.00 10,106.96 8,876.73 Others 5,613,706.58 124,221.41 475,736.58 26,655,364.73 5,485,249.39 4,166,892.02

By 31 December 2011, capitalized borrowing costs of real estate development included in inventory is RMB 2,138,380,000(1,047,670,000 by 31 December 2010 ), capitalized borrowing costs for this year is RMB 2,004,280,000 (1,145,170,000 for year 2010). The capitalization rate for certain loan expenses is 6.68%(5.33% by 31 December 2010)

(ii) Real estate development products details

Current Current Time of period period completion 31 Dec 2010 addition reduction 31 Dec 2011

Tangshan Lubei District Wutong Avenue development project 2011-11-26 57,807.90 66,402.25 50,933.68 73,276.47 Beijing Goldfish Pool the second phase 2010-06-04 70,313.05 5,621.44 9,225.55 66,708.94 Beijin Jinao International(Guancheng Center) 2010-10-25 77,411.03 11,265.43 34,252.04 54,424.42 Nanjing Zhongding Manor 2011-12-28 0.00 124,289.34 80,173.68 44,115.66 Anshan Qianshan District Zhongye Jadebay 1.1 period 2011-12-31 0.00 53,743.73 26,126.61 27,617.12 Tangshan Nanbao Coastal Garden 2011-06-30 0.00 21,588.68 0.00 21,588.68 Shanghai Minxing District Meilong 209 Block the third stage project 2012-06-30 35,600.26 21,114.81 35,600.26 21,114.81 Changshu Zhongye Yushan Garden 2012-12-31 0.00 67,521.32 54,346.81 13,174.51 Beijing Tongzhou District Qianchao Garden 2010-04-08 10,999.62 6,077.26 5,012.14 12,064.74 Others 108,984.77 556,521.38 571,569.45 93,936.70 361,116.63 934,145.64 867,240.22 428,022.05

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(9) I Inventories (continued)

(b) Provision for inventories：

Current year Current year 31 Dec. 2010 additions reductions 31 Dec. 201 Raw materials 16,692.29 23,199.02 40.97 39,850.34 Work in progress 3,823.91 9,202.61 720.88 12,305.64 Finished goods 19,839.34 15,791.91 11,360.06 24,271.19 Turnover materials 84.81 2,701.74 0.00 2,786.55 Amounts due from customers for contract work 14,795.82 12,001.67 1,491.14 25,306.35 Properties under development 0.00 842.19 0.00 842.19 Completed properties held for sale 620.54 169.16 489.82 299.88 Others 57.68 79.94 57.68 79.94 55,914.39 63,988.24 14,160.55 105,742.08

The amount of restricted inventories and the reason for restriction are disclosed in Note 8(22).

(c) Construction contract engineering 31 Dec. 2011 31 Dec. 2010 Cost incurred plus confirmed gross profits, and minus confirmed loss 53,397,846.17 42,859,926.46 Less: purchase price already settled 51,269,943.14 41,072,069.83 2,127,903.03 1,787,856.63

Construction contract engineering at the end of the period

Completed but unsettled 3,310,353.26 3,060,044.20 Settled but not finished 1,182,450.23 1,272,187.57 2,127,903.03 1,787,856.63

By December 31, 2011, the accumulated construction cost of one project undertaken by the group has exceeded the approved contract amount for RMB 750 million. More cost of RMB 5.5 billion will be needed to finish the contract (included in Note 8(46): contract results can not be reliably estimated). Till the reporting day, the net completed and unsettled amount is RMB 4.45 billion. This number is under the process of settlement and the Group has reached a consensus with the owner to control the cost by jointly implementation in the future. The final contract amount will be determined after special audit and negotiation of both parties. So the contract result can not be reliably estimated right now. However, after evaluation, the Group thinks that until the reporting day, the contract cost and future cost will be retrieved, so revenue is recognized according to actual cost and neither gross profit nor provision for the loss is recognized.

Since the final contract amount will be determined after special audit and negotiation of both parties, there is significant uncertainty in the contract results. The assets, liabilities and profit recognized using the method above can be adjusted in the future according to the progress of the contract. The group will continuously follow up the settlement with this construction, special audit and negotiation. If the cost could not be retrieved, or the total contract cost is expected to exceed the contract revenue, the group shall recognize the cost which can not be drew back as predicted contract loss.

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(10) Other current assets

31 Dec. 2011 31 Dec. 2010

Prepaid taxes 193,220.18 162,448.81 Financial assets available for sale 5,000.00 0.00 Fixed assets hold for sale 478.20 0.00 Intangible assets held for sale 309.80 0.00 199,008.18 162,448.81

(11) Financial assets available for sale

31 Dec. 2011 31 Dec. 2010

Equity instrument available for sale 36,817.95 86,724.62 Others 5,000.00 0.00 41,817.95 86,724.62 Less: reduction reserves 0.00 0.00 41,817.95 86,724.62 Less: financial assets listed on other current assets which are available for sale 5,000.00 0.00 36,817.95 86,724.62

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(12) Held-to-maturity investments

31 Dec. 2011 31 Dec. 2010

held-to- maturity investments—treasury bond 14.35 14.35 held-to- maturity investments--debentures 402.15 470.24 Others 0.00 25,000.00 416.50 25,484.59 Less: provision for impairment 400.12 450.00 16.38 25,034.59 Less: current portion of held-to- maturity investments 0.00 25,004.25 16.38 30.34

(13) Long-term receivables

31 Dec. 2011 31 Dec. 2010 Provision for Book value bal Provision for balance bad debts ance bad debts

Building-transferring(―BT‖) project fund 2,122,835.35 10,464.50 987,711.80 1,193.66 Guarantee money 27,782.80 0.00 69,450.40 0.00 Prepaid investment fund 186,738.80 0.00 0.00 0.00 2,337,356.95 10,464.50 1,057,162.20 1,193.66 Less: long-term receivables shall be mature within one year 103,127.78 0.00 28,785.25 0.00 2,234,229.17 10,464.50 1,028,376.95 1,193.66

(14) Long-term equity investment Current year Current year re 31 Dec. 2010 additions duction 31 Dec. 2011

Joint ventures and associates(a) 184,568.74 24,303.00 8,805.36 200,066.38 Other long-term equity investment (b) 74,210.32 49,411.00 5,115.18 118,506.14 258,779.06 73,714.00 13,920.54 318,572.52 Less: long-term equity investment reduction reserves 2,407.97 1,459.60 25.70 3,841.87 256,371.09 72,254.40 13,894.84 314,730.65

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(14) Long-term equity investments (Continued)

(a) Joint ventures and associates(Continued) For the year ended 31 31 December 2011 December 2011 Registered Registered Equity Voting rights Total location Nature of business capital Interest held held Total assets liabilities Revenues Net Profit

Tianjin Seri Machinery Ltd. Tianjin Production 21,000.00 50.00 50.00 435,018.10 303,613.90 139,706.30 11,458.70 Cultural Nanjing Da Ming Culture Co.,Ltd. Nanjing transformation 61,000.00 49.18 49.18 61,265.60 264.90 2.00 0.70 Beijing New Century Hotel Co.,Ltd. Beijing Hotel service 7,165.00 60.00 60.00 22,539.70 13,096.80 21,355.70 1,619.50 Zhongzhi Jing Cheng(Xiangtan)Hard Industrial Equipment Co.,Ltd. Xiangtan Production 25,000.00 51.00 51.00 103,583.80 68,879.50 38,777.20 1,007.40 Shanghai ZhongZhi XiangTeng Investment Co.,Ltd. Shanghai Property 30,000.00 33.00 33.00 42,193.80 7,966.90 4,669.50 1,384.60 Wuhan Vocational and Technological College Wuhan Education 25,000.00 35.00 35.00 83,757.70 57,470.70 7,572.00 -3,533.00 Equipment production and Tianjin Zhongji Equipment Production Co.,Ltd. Tianjin installation 2,000.00 50.00 50.00 54,549.70 36,287.40 0.00 -1,737.80 Zhuhai KaDuJunFang Real Estate development Co.,Ltd. Zhuhai Property 12,000.00 50.00 50.00 252,868.10 242,269.20 0.00 -269.60 Tangshan Cao Fei Dian 22ZhiTechnology Buildings Co.,Ltd. Tangshan construction 10,000.00 50.00 50.00 91,958.60 81,370.90 50,436.10 587.70 Langfang MCC Huan Tai Ecological Town Investment Co.,Ltd. Langfang Property 60,000.00 30.00 30.00 11,212.50 7.30 0.00 -529.90 Cold-rolled sheet Tianjin Tuopu Precision Steel Rolling Co.,Ltd. Tianjin processing 15,000.00 20.00 20.00 52,713.90 36,778.10 86,428.10 258.10 Shanghai Zhihu Real Estate Co.,Ltd. Shanghai Property 1,500.00 38.00 38.00 25,384.30 17,812.50 61,367.50 6,071.80 Tianjing 20thMeyallurgical Metal structure Steel Structure Co.,Ltd. Tianjin production 5,022.00 39.84 39.84 8,838.70 2,445.00 5,767.30 118.00 Shanghai ZhongYeXiangLin Investment Co.,Ltd. Shanghai Property 5,025.00 34.00 34.00 8,981.10 2,891.70 18,485.60 2,025.80 Tangshan ZhongZhi Arch Real Estate development Co.,Ltd. Tangshan Property 500.00 33.50 33.50 7,342.80 3,636.10 0.00 -297.50

(14) Long-term equity investments (Continued)

(a) Joint ventures and associates(Continued) For the year ended 31 31 December 2011 December 2011 Equity Registered Nature of Registered Interest Voting rights Total location business capital held held Total assets liabilities Revenues Net profit

Shanghai ZhongZhiXiangQi Investment Co., Ltd. Shanghai Property 5,025.00 34.00 34.00 8,981.10 2,891.70 18,485.60 2,025.80 Tangshan ZhongZhi Arch Real Estate development Co., Ltd. Tangshan Property 500.00 33.50 33.50 7,342.80 3,636.10 0.00 -297.50 Yichang ZhongZHi Hard Industrial Equipment Machinery Co.,Ltd. Zhijiang production 2,000.00 40.00 40.00 12,772.10 10,148.50 11,094.00 13.00 Shanghai Baoye Tongji Roberts Production and Co., Ltd. Shanghai technology service 740.00 45.95 45.95 2,681.70 513.00 2,005.00 149.60 Wuhan HanWei Secondary Refining Co., Buildings LTD Wuhan installation 150.00 22.00 22.00 8,257.20 5,757.30 7,512.30 689.30 Ningbao BaoXin Industrial development Co.Ltd. Ningbo Packaging 600.00 34.00 34.00 3,105.80 1,899.40 11,322.30 124.30 Shandong WoYuan Organic Fertilization Co.,Ltd. Linqing Production 61,454.49 40.00 40.00 1,578.12 578.12 0.00 0.00 HATCH-CISDI International Engineering USD1000 Consulting Co.Ltd. Hongkong Technology service ,000 49.00 49.00 832.80 74.40 867.90 -96.90 Ma An Shan Jia He Real Estate Company Ma An Shan Property 1,000.00 20.00 20.00 4,289.90 2,740.50 338.20 91.10 Beijing YouYa Construction Technology Production of other Co., Ltd. Beijing cements 100.00 50.00 50.00 824.75 282.89 0.00 -147.04 Development and sale of Mechanical Ma An Shan Hua Tian Equipment Sets and electrical Co.,Ltd. Ma An Shan equipment 100.00 30.00 30.00 768.23 195.36 235.00 6.06 Huludao non-ferrous metal trade Co., LTD Huludao Trading 500.00 40.00 40.00 2,965.70 2,476.87 0.00 -3.10 Shanghai Baoye Commercial Concrete Co., Ltd. Shanghai Building material 2,000.00 30.00 30.00 1,747.20 1,323.12 0.00 0.00

CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 8 Notes to the consolidated financial statements (Continued) (14) Long-term equity investments (Continued) (a) Joint ventures and associates(Continued) For the year ended 31 31 December 2011 December 2011 Registered Nature of Registere Equity Voting Total location business d capital Interest held rights held Total assets liabilities Revenues Net profit Tangshan Run Da Property Management Property Co.Ltd. Tangshan management 300.00 38.00 38.00 1,295.58 834.57 1,822.90 24.86 No.17 Chemical Industy Ma An Shan Chemical industry 480.00 47.00 47.00 1,070.20 1,300.90 0.00 -140.00 Building and Baoye (Philippines)Construction Co.Ltd. Philippines engineering design 153.39 40.00 40.00 3,167.40 2,815.00 5,350.40 215.30 Tangshan 22 zhi Hospital Tangshan Hospital 315.00 45.00 45.00 1,983.07 1,654.49 2,239.05 -371.42 Tangshan XinPeng construction Witness sampling of engineering detection Co., Ltd Tangshan test items 300.00 40.00 40.00 424.10 111.00 449.31 1.40 Wuhan ZhongHe Engineering Quality testing Co.,Ltd. Wuhan Testing service 240.00 33.33 33.33 1,004.90 710.32 2,558.50 45.01 Sha he HuaYe storage and transportation Agent of train Co.,Ltd. Shahe transportation etc. 100.00 35.00 35.00 241.75 54.08 467.92 68.83 Shanxi DungTai Property Management Property Co.Ltd. Shanxi management 627.59 39.60 39.60 2,373.44 2,400.03 501.77 -52.11 Taiyuan XingHuaLing binary bilingual kindergarten Taiyuan Kindergarten 155.00 47.60 47.60 159.81 68.38 103.12 -5.65 Jianyang ChenKan Industrial Property Development Co., Ltd. Chengdu management 100.00 30.00 30.00 460.17 331.71 79.70 -11.45 Ma An Shan HuaTian Graphic Production Co., Ltd. Ma An Shan CAD mapping etc. 125.00 30.00 30.00 146.76 11.77 468.36 17.12 Engineering Ma An Shan HuaTian geotechnical geological engineering Co., Ltd. Ma An Shan prospecting etc. 96.00 25.00 25.00 193.11 54.46 565.01 7.88 Engineering Handan Huaye Geotechnical Engineering geological Co,.Ltd. Handan prospecting 100.00 27.20 27.20 244.28 153.05 99.76 -24.20 Anshan SanYe swimming pool Co., Ltd. Ma An Shan Swimming 11.60 22.00 22.00 122.20 9.88 40.66 12.45 Huabei Ye Jian Ling Nan Hospital Handan Hospital 100.00 23.75 23.75 155.64 113.24 241.73 -45.42 HeXianYi EnFei Engineering company Beijing Buildings design 300.00 35.00 35.00 496.21 691.10 422.00 -124.00 Shanghai Jin Hai real estate development 4,400.0 Co., LTD Shanghai Property 0 45.00 45.00 5,284.00 6,623.80 94.00 15.90 Taiyuan No.7 People‘s Hospital Taiyuan Hospital 840.00 42.53 42.53 2,519.24 2,981.37 1,107.18 -216.80 1,323,373.76 921,699.51 484,553.37 18,408.52

(14) Long-term equity investments (Continued) (a) Joint ventures and associates (continued) investment in joint ventures and associates are set out below： Net Initial 31 December change in profit/loss declared other 31 December method investment 2010 investment under profits changes in 2011 cost cost equity equity method Tianjin SERI Machinery Equipment Corporation Limited equity method 35,765.46 58,710.09 0.00 5,705.61 0.00 0.00 64,415.70 Daming Cultural and Industrial (Nanjing) Limited Liability Company equity method 30,000.00 30,000.00 0.00 0.35 0.00 0.00 30,000.35 Beijing New Century Hotel Limited Company equity method 26,000.00 24,452.50 0.00 -178.22 580.10 0.00 23,694.18 MCC (Xiangtan) Heavy Industrial Equipment Co., Ltd. equity method 12,750.00 17,185.42 0.00 513.77 0.00 0.00 17,699.19 Shanghai Zhongye Xiangteng Investment Company equity method 9,900.00 17,290.30 0.00 482.64 6,492.14 0.00 11,280.80 Wuhan College of Industrial Technology equity method 8,750.00 11,438.88 0.00 -2,236.81 0.00 0.00 9,202.07 Tianjin Zhongji Equipment Manufacture Co. Ltd. equity method 10,000.00 0.00 10,000.00 -868.88 0.00 0.00 9,131.12 Zhuhai Cadoo Real Estate Development Co., Ltd. equity method 6,000.00 5,831.87 0.00 -134.82 0.00 0.00 5,697.05 Tangshan Caofeidian 22th Engineering Limited Company equity method 6,182.42 0.00 6,182.42 -888.55 0.00 0.00 5,293.87 Langfang Zhongye Huantai Ecology-friendly City Investment Co., Ltd. equity method 5,017.66 5,176.63 0.00 -158.97 0.00 0.00 5,017.66 Tianjin Tuopu Precision Steel Rolling Limited Liability Company equity method 3,000.00 3,137.41 0.00 51.61 0.00 0.00 3,189.02 Shanghai Zhihu Real Estate Development Co., Ltd. equity method 570.00 0.00 0.00 2,565.28 0.00 0.00 2,565.28 Tianjin 22nd Tianguan Steel Structure Limited Company equity method 2,000.00 2,508.71 0.00 47.00 0.00 0.00 2,555.71 Shanghai Zhongzhi Xianglin Investment Limited Company equity method 1,708.50 1,860.92 0.00 534.75 0.00 0.00 2,395.67 Tangshan Zhongzhi Fangzhou Real Estate Development Co., Ltd. equity method 1,675.00 0.00 1,675.00 -99.67 0.00 0.00 1,575.33 Yichang Zhongye Heavy Industry Machinary Limited Company equity method 1,111.78 0.00 1,111.78 13.95 0.00 0.00 1,125.73 Shanghai Baoye Tongji Robot Limited Company equity method 359.27 910.91 0.00 85.22 0.00 0.00 996.13 Wuhan Hanwei Outsider Refining Furnace Limited Company equity method 186.95 452.98 0.00 119.00 22.00 0.00 549.98 Ningbo Baoxin Industry Limited Company equity method 204.00 367.93 0.00 42.26 0.00 0.00 410.19 Shandong Woyuan Organic Fertilizer Limited Company equity method 400.00 400.00 0.00 0.00 0.00 0.00 400.00

(14) Long-term equity investments (Continued)

(a) Joint ventures and associates (continued) investment in joint ventures and associates are set out below： net Initial 31 December change in profit/loss declare other 31 method investment 2010 investment under d changes in December cost cost equity profits equity 2011 method HATCH-CISDI International Engineering Consultation Limited equity method 352.25 447.01 0.00 -47.49 0.00 0.00 399.52 Liability Company Ma‘anshan Jiahe Real Estate Development Co., Ltd. equity method 200.00 291.67 0.00 18.22 0.00 0.00 309.89 Beijing Youya Construction Technology Co., Ltd. equity method 50.00 377.21 0.00 -73.52 0.00 0.00 303.69 Ma‘anshan Huatian Complete Equipment Co., Ltd. equity method 30.00 246.50 0.00 1.82 0.00 0.00 248.32 Huludao Non-ferrous Metal Trade Co., Ltd. equity method 200.00 195.51 0.00 -1.23 0.00 0.00 194.28 Shanghai Baoye Commercial Ready-mixed Concrete Company equity method 600.00 181.24 0.00 0.00 0.00 0.00 181.24 Tangshan Runda Property Management Co., Ltd. equity method 114.00 166.31 0.00 9.44 0.00 0.00 175.75 17th Chemical Plant equity method 261.76 159.62 0.00 0.00 0.00 0.00 159.62 Baozhi (Philippine) Construction Limited Company equity method 61.82 61.82 0.00 86.14 0.00 0.00 147.96 Tangshan 22nd Hospital equity method 315.00 220.30 0.00 -72.44 0.00 0.00 147.86 Tangshan Xinpeng Construction Test Co., Ltd. equity method 120.00 126.98 0.00 0.56 0.00 0.00 127.54 Wuhan Zhonghe Project Quality Test Limited Liability Company equity method 80.00 96.36 0.00 15.00 0.00 0.00 111.36 Shahe Storage and Transportation Limited Liability Company equity method 35.00 78.80 0.00 24.09 13.50 0.00 89.39 Shanxi Dongtai Property Management Limited Liability Company equity method 248.53 79.73 0.00 -20.64 0.00 0.00 59.09 Taiyuan Xinghualing Double Star Bilingual Kindergarten equity method 0.00 51.07 0.00 -2.69 0.00 0.00 48.38 Jianyang Chengkan Industrial Development Limited Company equity method 30.00 48.72 0.00 -3.43 0.00 0.00 45.29 Ma‘anshan Huatian Graphic Production Limited Company equity method 21.00 59.88 -16.50 5.15 11.03 0.00 37.50 Ma‘anshan Huatian Geotechnical Engineering Co., Ltd. equity method 24.00 24.14 0.00 1.97 0.00 0.00 26.11 Handan Huaye Geotechnical Engineering Co., Ltd. equity method 27.20 31.40 0.00 -6.58 0.00 0.00 24.82

(14) Long-term equity investments (Continued)

(a) Joint ventures and associates (continued)

investment in joint ventures and associates are set out below： net other Initial 31 December change in profit/loss declared changes 31 method investment 2010 investment under profits in December cost cost equity equity 2011 method

Anshan Sanye Natatorium Limited Company equity method 25.52 26.35 0.00 2.74 4.38 0.00 24.71 Huabei Yejian Lingnan Hospital equity method 28.50 19.81 0.00 -10.78 0.00 0.00 9.03 Hexianyi Enfei Engineering Company equity method 105.00 0.00 0.00 0.00 0.00 0.00 0.00 Shanghai Jinhai Real Estate Development Co., Ltd. equity method 1,445.28 189.27 0.00 -189.27 0.00 0.00 0.00 Taiyuan 7th Hospital equity method 352.47 0.00 0.00 0.00 0.00 0.00 0.00 Jiugang Honglian Automatic Control Co., Ltd. equity method 0.00 1,389.36 -1,389.36 0.00 0.00 0.00 0.00 Erdos Huigu East Engineering Consultation Co., Ltd. equity method 60.00 63.49 -64.86 1.37 0.00 0.00 0.00 Shanxi Yamei Fire Proofing Limited Liability Company equity method 0.00 211.64 -211.64 0.00 0.00 0.00 0.00 166,368.37 184,568.74 17,286.84 5,333.95 7,123.15 0.00 200,066.38

8 Notes to the consolidated financial statements (Continued)

(14) Long-term equity investments (Continued)

(b) Other long-term equity investments  sharehold Initial 31 Current Current 31 Name of investee Method ing ratio investment December year year December cost 2010 additions reductions 2011

Tangshan Luanxian Sijiaying Iron Ore Cost method 23.89 64,500.00 22,500.00 42,000.00 0.00 64,500.00 Development Co., Ltd Hebei Iron and Steel Group Luanxian Cost method 14.45 8,000.00 8,000.00 0.00 0.00 8,000.00 Sijiaying Iron Ore Co., Ltd. Huludao Bank Co., Ltd Cost method 2.09 1,500.00 4,405.37 0.00 0.00 4,405.37 Jinzhou Commercial Bank Limited Liability Cost method 5.00 3,100.00 3,100.00 0.00 0.00 3,100.00 Company Great Wall Life Insurance Stock Company Cost method 1.92 3,000.00 3,000.00 0.00 0.00 3,000.00 Jidong Cement Luanxian Limited Liability Cost method 6.74 2,970.46 2,970.46 0.00 0.00 2,970.46 Company Wuhan Hankou Bank Cost method 1.33 2,756.60 2,756.60 0.00 0.00 2,756.60 Shanxi Sanjin Mining Industry Limited Cost method 20.00 2,000.00 2,000.00 0.00 0.00 2,000.00 Liability Company Lanzhou Jinchuan Metal Material Co., Ltd. Cost method 0.96 1,000.00 1,739.45 0.00 0.00 1,739.45 Beijing Yenai Project Material Co., Ltd. Cost method 100.00 1,729.84 0.00 1,729.84 0.00 1,729.84 Zhongse Technology Limited Liability Cost method 6.00 311.18 1,638.02 0.00 0.00 1,638.02 Company Jiugang Honglian Automatic Control Co., Ltd. Cost method 18.63 1,389.36 0.00 1,389.36 0.00 1,389.36 Ma‘anshan 17th Hospital Cost method 51.00 1,384.40 1,384.40 0.00 0.00 1,384.40 North Copper Industry Limited Liability Cost method 0.80 300.00 1,169.63 0.00 0.00 1,169.63 Company Beitai Cast Tube Factory Cost method 2.60 1,077.54 1,077.54 0.00 0.00 1,077.54 Ningxia Bank Limited Liability Company Cost method 0.52 1,050.00 1,050.00 0.00 0.00 1,050.00 Baotou Zhongguixi Energy Innovations Co., Cost method 51.00 1,020.00 0.00 1,020.00 0.00 1,020.00 Ltd. Huludao Port Development Co., Ltd. Cost method 19.81 1,000.00 1,000.00 0.00 0.00 1,000.00 Baogang Group Financial Co., Ltd. Cost method 2.00 949.77 949.77 0.00 0.00 949.77 Zhongse International Mining Indusry Cost method 4.37 600.00 930.21 0.00 0.00 930.21 Limited Liability Company Wuhan Puren Hospital Cost method 16.10 700.26 700.26 0.00 0.00 700.26 Tianjin Jidong Cement Co., Ltd. Cost method 9.00 668.98 668.98 0.00 0.00 668.98 Wuhan Jiangcheng Commercial Limited Cost method 15.19 654.00 654.00 0.00 0.00 654.00 Company Wuhan College of Industrial Technology Cost method 20.00 597.34 597.34 0.00 0.00 597.34 Zhongye Group Guangzhou Co., Ltd. Cost method 100.00 509.76 0.00 509.76 0.00 509.76 Zhongdian Touyuanda Environment Cost method 6.67 500.00 500.00 0.00 0.00 500.00 Engineering Co., Ltd. Tianjin Dawufeng Construction and Cost method 6.85 500.00 500.00 0.00 0.00 500.00 Development Co., Ltd. Qingdao Jinzeshun Property Co., Ltd. Cost method 50.00 500.00 500.00 0.00 0.00 500.00 Zhongye Paper Industry Trade Co., Ltd. Cost method 70.00 490.00 490.00 0.00 0.00 490.00 Tsitsihar Beixing Special Steel Limited Cost method 0.89 428.90 428.90 0.00 0.00 428.90 Liability Company Pangang Group Financial Co., Ltd. Cost method 0.24 409.80 409.80 0.00 0.00 409.80 Shanghai Xinpu Transportation Co., Ltd. Cost method 40.00 408.29 408.29 0.00 0.00 408.29 Tianjin Bohai Metallurgy Industry Company Cost method 2.32 1,506.57 326.45 0.00 0.00 326.45 Xinye High Technology Group Co., Ltd. Cost method 4.14 311.59 311.59 0.00 0.00 311.59 Others 17,425.01 8,043.26 2,762.04 5,115.18 5,690.12 125,249.65 74,210.32 49,411.00 5,115.18 118,506.14

(14) Long-term equity investments (Continued) (c) Provision for impairment of long-term equity investments Current current 31 December year year 31 December reason for 2010 additions reduction 2011 deduction Jisco (group) Macro League Control Co.,Ltd. 788.12 0.00 0.00 788.12 Not Applicable Beijing Smelting Resistance to Engineering material Co., Ltd. 0.00 661.80 0.00 661.80 Not Applicable Shanghai XinPu Transport Co., Ltd. 323.54 84.75 0.00 408.29 Not Applicable Tianjin Bohai metallurgical industry company 326.45 0.00 0.00 326.45 Not Applicable Silicon in West Energy Innovation Co., Ltd. 0.00 320.18 0.00 320.18 Not Applicable ZhongYe Beijing Sincere Baoding paper development Co., Ltd. 221.09 0.00 0.00 221.09 Not Applicable Shanghai Baoye Commercial Concrete Company 181.24 0.00 0.00 181.24 Not Applicable No.17 Industrial Company 159.62 0.00 0.00 159.62 Not Applicable ZhongYe Group Guangzhou Co., Ltd. 0.00 152.44 0.00 152.44 Not Applicable Hainan Chengdu Enterprise Group 136.40 0.00 0.00 136.40 Not Applicable Haikou XingZhi Industrial development Company 95.38 0.00 0.00 95.38 Not Applicable The Shanghai and real estate Recollection of development Co., Ltd. 74.51 0.00 3.53 70.98 part investment Suzhou Steel Co., Ltd. 0.00 66.50 0.00 66.50 Not Applicable Anshan ZhongYe Pile engineering technology Co., Ltd. 0.00 59.47 0.00 59.47 Not Applicable Shanxi YaMeiRefractory materials Co.,Ltd. 0.00 55.40 0.00 55.40 Not Applicable Hainan Pan-China Expressway Co., Ltd. 0.00 49.06 0.00 49.06 Not Applicable China YouYiJi joint capital 30.00 0.00 0.00 30.00 Not Applicable Imperial Technology Corporation 20.00 0.00 0.00 20.00 Not Applicable ShenKan Geotechnical Engineering Department 14.58 0.00 0.00 14.58 Not Applicable Emerging project contracting company 0.00 10.00 0.00 10.00 Not Applicable Shenzhen metallurgical industry Company 10.00 0.00 0.00 10.00 Not Applicable Beijing Capital Technology Co., Ltd. 4.87 0.00 0.00 4.87 Not Applicable Wuhan ChenGuang Cooling Real loss Equipment Co., Ltd. 22.17 0.00 22.17 0.00 offsetting 2,407.97 1,459.60 25.70 3,841.87

8 Notes to the consolidated financial statements(Continued)

(15) Investment properties

Buildings Land use rights Total

Cost 31 December 2010 55,619.88 119,443.64 175,063.52 Current year additions 33,709.96 0.00 33,709.96 Current year disposals 12,697.94 3,892.26 16,590.20 31 December 2011 76,631.90 115,551.38 192,183.28

Accumulated depreciation/amortisation 31 December 2010 37,269.75 2,970.92 40,240.67 Current year depreciation 7,061.82 3,095.39 10,157.21 Current year disposals 8,086.99 938.64 9,025.63 31 December 2011 36,244.58 5,127.67 41,372.25

Provision for impairment 31 December 2010 0.00 0.00 0.00 Current year charges 0.00 0.00 0.00 Other reductions 0.00 0.00 0.00 31 December 2011 0.00 0.00 0.00

Nei book value 31 December 2011 40,387.32 110,423.71 150,811.03 31 December 2010 18,350.13 116,472.72 134,822.85

(a) In 2011，the Group changed the use of buildings with net book value of RMB 1,258.05 ten thousand (cost of 8,191.16 ten thousand) and land use rights with net book value of RMB 2,953.62 ten thousand (cost of 3,892.26 ten thousand) to owner-occupied properties. Therefore, such investment properties were transferred to fixed assets and intangible assets respectively at the dates of transfers.

(b) In 2011, the Group changed the use of buildings with net book value of RMB 15,132.16 ten thousand (cost of 17,788.73 ten thousand) to lease-out properties, and therefore, such assets were transferred from fixed assets and intangible assets to investment properties at the dates of transfers.

(c) In 2011, the Group disposed investment properties with net book value of RMB3,352.90 ten thousand (cost of 4,506.78 ten thousand), realizing proceeds of RMB 3,739.89 ten thousand on the disposal.

The amount of restricted investment properties and the reasons for restriction are disclosed in (d) Note 8(22).

(16) Fixed assets Temporary buildings Motor Machinery and Buildings structure vehicles equipment Others Total Cost 31 December 2010 2,109,176.86 42,251.37 218,923.44 2,618,618.44 97,570.40 5,086,540.51 Transfer from construction in progress 235,689.33 8,962.76 2,039.04 267,820.18 29,297.47 543,808.78 Other current year additions 34,078.47 11,621.55 37,345.18 120,798.93 12,915.55 216,759.67 Current year disposals 86,440.75 7,706.03 15,166.56 167,689.29 20,511.57 296,203.756 31 December 2011 2,289,715.35 55,435.28 245,401.81 2,839,548.26 120,804.51 5,550,905.21

Accumulated depreciation 31 December 2010 303,719.29 22,478.40 97,642.57 816,707.06 40,168.26 1,280,715.58 Current year depreciation 77,663.77 11,088.81 28,954.73 193,111.93 13,783.96 324,603.20 Other current year additions 7,057.49 - 66.29 6.72 90.4 7,139.53 Current year disposals 15,489.16 6,134.68 10,372.27 77,316.78 4,038.69 113,351.58 31 December 2011 372,923.62 27,157.27 116,548.07 932,314.51 50,163.27 1,499,106.74

Provision for impairment 31 December 2010 178.08 - - 20,955.74 0.09 21,133.91 Current year provision 52,724.16 - 673.98 246,511.90 17,075.05 316,985.09 Current year reductions 5.00 - - 1,504.87 - 1,509.87 31 December 2011 52,897.24 - 673.98 265,962.77 17,075.14 336,609.13

Net book value 31 December 2011 1,863,894.49 28,278.01 128,179.76 1,641,270.98 53,566.10 3,715,189.34 31 December 2010 1,805,279.49 19,772.97 121,280.87 1,780,955.64 57,402.05 3,784,691.02

(a) In 2011, depreciation expenses of 219,655.63 ten thousand, 1,097.78 ten thousand and 85,164.41 ten thousand are included in operating cost, operating expensed and management expenses respectively. (In 2010, 200,767.20 ten thousand, 1,094.85 ten thousand and 46,488.85ten thousand).

As at 31 December 2011，the cost of the fixed assets which have been depreciated to its net residual value (b) but are still in use was RMB100,238.17 ten thousand;

As at 31 December 2011，the cost of the fixed assets which are temporarily not in use was RMB2,756.90 (c) ten thousand;

(d) In 2011, the fixed assets with a cost of RMB 82,146.17 ten thousand (net book value of 10,588.54 ten thousand) were scrapped, and resulted, a loss of 9,209.43 ten thousand;

(e) The amount of restricted investment properties and the reasons for restriction are disclosed in Note 8(22).

As at 31 December 2011，available-for-sale assets held by the Group are listed below:

Book value Fair value Expected disposal cost Expected date of disposal

Buildings 478.21 2,467.92 294.44 2012-6-30 65

8 Notes to the consolidated financial statements (Continued) 17 Construction in progress (Continued) (a) Current year Proportion of 31 December 2010 additions project cost as Provision for including : Budget total compared with including : impairment A Interest budget (%) Amount Interest capitalised mount capitalised

Construction in progress 8,726,876.59 — 1,527,255.94 86,907.41 8,198.91 841,750.79 44,187.13

Top 10 projects:

MCC Jiangtong Ainake Mining Co., Ltd. infrastructure project 2,384,780.00 3.72 49,737.88 0.00 0.00 23,881.00 0.00 Papua New Guinea Ramu nickel-cobalt project 1,030,000.00 97.00 790,551.27 50,216.00 0.00 128,162.69 31,345.69 MCC Paper Group Southeast integrated pulp and paper project 750,800.00 0.42 2,618.49 0.00 0.00 515.55 0.00 2000 tons of new ultra-high pure silicon integrated high-tech industrialization project 120,000.00 80.00 876.18 0.00 0.00 21,809.34 0.00 Recycling of by-product of high-tech industrialization project 120,000.00 55.00 3,573.65 0.00 0.00 47,349.19 0.00 Dalian Co., Ltd office building project 87,784.80 81.57 64,330.61 0.00 0.00 7,272.56 0.00 Cold-rolled non-oriented silicon steel first phase project 87,500.00 79.11 1,036.50 640.21 0.00 11,471.29 346.35 MCC CISDI Chengdu Research and Design Center 76,655.00 0.06 2.18 0.00 0.00 44.00 0.00 Huludao electrolytic copper engineering with annual production capacity of 150000 tons 66,848.00 0.40 183.04 0.00 0.00 27.50 0.00 Huludao Copper system modification project 66,400.00 99.23 54,163.67 4,830.44 0.00 11,540.21 1,752.37

CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 8 Notes to the consolidated financial statements (Continued) 17 Construction in progress (Continued) (a) : Current year reductions 31 December 2011 Fund resource Including: Transfer including :Interest Provision Amount to fixed assets Amount capitalised for mpairment

Construction in progress 587,691.06 543,808.78 1,781,315.67 117,169.61 59,626.24 —

Top 10 projects: MCC Jiangtong Ainake Mining Co., Ltd. infrastructure project 4,238.76 1,018.11 69,380.12 0.00 0.00 Self-raised fund Papua New Guinea Ramu nickel-cobalt project Loan from financial institution and A share listing 84.25 84.25 918,629.72 81,561.69 0.00 proceeds MCC Paper Group Southeast integrated pulp Self-raised fund and paper project 0.00 0.00 3,134.04 0.00 0.00 2000 tons of new ultra-high pure silicon integrated high-tech industrialization project 50.00 50.00 22,635.52 0.00 0.00 Self-raised fund Recycling of by-product of high-tech industrialization project 50,735.38 50,735.38 187.46 0.00 0.00 Self-raised fund Dalian Co., Ltd office building project 0.00 0.00 71,603.17 0.00 0.00 Self-raised fund Cold-rolled non-oriented silicon steel first phase project 12,030.42 12,030.42 477.37 0.00 0.00 Loan from financial MCC CISDI Chengdu Research and Design Center 0.00 0.00 46.18 0.00 0.00 Self-raised fund Huludao electrolytic copper engineering with annual production capacity of 150000 tons 0.00 0.00 210.54 0.00 0.00 Self-raised fund Huludao Copper system modification project 0.00 0.00 65,703.88 6,582.81 0.00 Loan from financial

The amount of restricted construction in progress and the reasons for restriction are disclosed in Note 8(22)

8 Notes to the consolidated financial statements (Continued) (17) Construction in progress (Continued)

(b) Provision for impairment of construction in progress Current Current 31 December year year 31 December 2010 additions reductions 2011

Spin boiler reconstruction of Huludao Zinc thermal power plant 585.62 0.00 0.00 585.62 MCC Paper Group Inner Mongolia pulp paper three sections of drift technical project 0.00 1,093.91 0.00 1,093.91 MCC-ht 14th Group galvanizing line project 1,610.95 12,296.62 0.00 13,907.57 MCC-ht 13th Group galvanizing line project 1,733.69 11,274.30 0.00 13,007.99 MCC-ht 9th Group galvanizing line project 879.55 5,886.54 0.00 6,766.09 MCC-ht 10th Group galvanizing line project 786.30 5,681.26 0.00 6,467.56 MCC-ht 11th Group galvanizing line project 842.56 5,431.07 0.00 6,273.63 MCC-ht 12th Group galvanizing line project 845.88 4,073.96 0.00 4,919.84 th th MCC-ht 13 ,14 Group galvanizing line 218.15 2,140.34 0.00 2,358.49 elementary thproject MCC-ht 11 Group galvanizing line 82.87 813.04 0.00 895.91 elementary thproject MCC-ht 12 Group galvanizing line 82.87 813.04 0.00 895.91 elementary thproject MCC-ht 10 Group galvanizing line 82.03 804.83 0.00 886.86 elementaryth project MCC-ht 9 Group galvanizing line elementary project 76.90 754.53 0.00 831.43 Other MCC-ht project under construction 371.54 363.89 0.00 735.43 8,198.91 51,427.33 0.00 59,626.24

(18) Construction materials

(a) The final book balance of Engineering materials Current year Current year 31 December 2010 additions reductions 31 December 2011

proprietary material 8,338.01 41,921.09 44,041.74 6,217.36 special hardware 9,956.74 9,062.02 13,383.06 5,635.70 Tools and instruments prepare for production 1,045.54 1,876.47 2,822.75 99.26 Other 27.39 763.43 778.76 12.06 19,367.68 53,623.01 61,026.31 11,964.38

(b) The final provision for impairment

Current Current year year 31 December 2010 additions reductions 31 December 2011

Proprietary material Special hardware 685.68 685.68 Tools and instruments prepare for production Other 685.68 685.68 68

8 Notes to the consolidated financial statements (Continued)

(19) Intangible assets

Concession Land use Mining trademark rights rights Patents Software rights Other Total Cost 31 December 2010 1,089,343.62 490,725.74 4,440.34 20,922.20 589,667.99 27.00 2,195,126.89 Current year additions 432,847.86 51,913.73 123.24 7,153.25 60,235.85 0.00 552,273.93 Current year reductions 65,786.26 27,109.99 0.00 30.43 1,112.62 0.00 94,039.30 31 December 2011 1,456,405.22 515,529.48 4,563.58 28,045.02 648,791.22 27.00 2,653,361.52

Accumulated amortization 31 December 2010 69,728.14 5,020.82 2,537.84 9,188.01 10,018.39 27.00 96,520.20 Current year additions 25,348.30 8,094.15 235.38 3,799.23 6,972.48 0.00 44,449.54 Current year reductions 4,964.13 64.62 0.00 10.14 0.82 0.00 5,039.71 31 December 2011 90,112.31 13,050.35 2,773.22 12,977.10 16,990.05 27.00 135,930.03

Provision for impairment 31 December 2010 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Current year additions 34,114.77 0.00 0.00 0.00 0.00 0.00 34,114.77 Current year reductions 984.29 0.00 0.00 0.00 0.00 0.00 984.29 31 December 2011 33,130.48 0.00 0.00 0.00 0.00 0.00 33,130.48

Book value 31 December 2011 1,333,162.43 502,479.13 1,790.36 15,067.92 631,801.17 0.00 2,484,301.01 31 December 2010 1,019,615.48 485,704.92 1,902.50 11,734.19 579,649.60 0.00 2,098,606.69

(a) Expenditures on research and development incurred in 2011 amounted to RMB 224,396.94 ten thousand.( 2010 amounted to RMB 179,307.01 ten thousand); RMB 203,073.51 ten thousand should be recorded into the current profits and losses(2010 amounted to RMB 174,607.86 ten thousand)

(b) The amount of restricted intangible assets and the reasons for restriction are disclosed in Note 8(22).

CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 8 Notes to the consolidated financial statements (Continued) (20) Goodwill Current Curren Name of Investee year t year 31 December 2010 additions reductions 31 December 2011 Arising from Provision Original for Net Book Original Provision for Net Book Cost impairment Value Cost impairment Value Business combination MCC Mineral Sierra Grande S.A.(a) 21,190.66 0.00 21,190.66 0.00 2,388.93 18,801.73 0.00 18,801.73 other than common control Beijing Guangyuanli Real Estate Development Co., Business combination Ltd.(b) 17,088.56 17,088.56 0.00 0.00 0.00 17,088.56 17,088.56 0.00 other than common control Business combination MCC Finance Co., Ltd.(c) 10,503.15 0.00 10,503.15 0.00 0.00 10,503.15 0.00 10,503.15 other than common control Beijing Shengpeng Real Estate Development Co., Business combination Ltd. 9,492.34 7,107.05 2,385.29 0.00 2,385.29 9,492.34 9,492.34 0.00 other than common control Beijing Huachengtong Real Estate Business combination Co., Ltd. 3,422.71 0.00 3,422.71 0.00 0.00 3,422.71 0.00 3,422.71 other than common control Business combination Beijing Huayuan Hotel Co., Ltd. 2,329.60 0.00 2,329.60 0.00 0.00 2,329.60 0.00 2,329.60 other than common control Business combination Beijing Tianrun Construction Engineering Co., Ltd. 514.16 0.00 514.16 0.00 0.00 514.16 0.00 514.16 other than common control Business combination Beijing Haike Real Estate Development Co., Ltd. 647.68 0.00 647.68 0.00 647.68 647.68 647.68 0.00 other than common control Business combination Beijing Xin‘an Real Estate Development Co., Ltd 1,182.98 0.00 1,182.98 0.00 1,182.98 1,182.98 1,182.98 0.00 other than common control Business combination Qingdao Jin Ze Hua Di Real Estate Co., Ltd. 977.93 0.00 977.93 0.00 0.00 977.93 0.00 977.93 other than common control Business combination Shanghai Sangang Transport Handing Co., Ltd. 967.64 0.00 967.64 0.00 0.00 967.64 0.00 967.64 other than common control Business combination Ningcheng Hongda Mining Co., Ltd. 718.68 0.00 718.68 0.00 0.00 718.68 0.00 718.68 other than common control Business combination Shanghai Wugang Equipment Engineering Co., Ltd. 111.37 0.00 111.37 0.00 0.00 111.37 0.00 111.37 other than common control Business combination Shanghai Yigang Electrical and Mechanical Co., Ltd. 44.85 0.00 44.85 0.00 0.00 44.85 0.00 44.85 other than common control Business combination Tibet Huaxia Mining Co. Ltd 5,449.33 0.00 5,449.33 0.00 0.00 5,449.33 0.00 5,449.33 other than common control Business combination Tibet Huayi Industry and Trading Co., Ltd. 4,131.32 0.00 4,131.32 0.00 0.00 4,131.32 0.00 4,131.32 other than common control Business combination Wuhan Huaxia Fine Blanking Technology Co., Ltd. 83.69 0.00 83.69 0.00 0.00 83.69 0.00 83.69 other than common control Business combination Huludao Tongxin Technology Development Co., Ltd. 37.96 0.00 37.96 0.00 0.00 37.96 0.00 37.96 other than common control Business combinationother Chengde Tiangong Architecture Design Co., Ltd. 0.00 0.00 0.00 3,346.02 0.00 3,346.02 0.00 3,346.02 than common control Business combination MCC Meili logistics Co., LTD 0.00 0.00 0.00 120.03 0.00 120.03 0.00 120.03 other than common control 78,894.61 24,195.61 54,699.00 3,466.05 6,604.88 79,971.73 28,411.56 51,560.17

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(20) Goodwill (continued)

The goodwill increased during the year due to buying 100% of the outstanding stock of Chengde Tiangong Architectural Design Co., Ltd. and MCC Meili logistics Co., LTD. (appendix 16 (1))。

(a) Since the Company has the intention to sell its business, its recoverable amount is based on fair value minus sale costs. Fair value and sale costs are based on the intention price in the preliminary agreement and the relevant expenses directly related to the disposal of the business

On December 31, 2011, the Group's management believes that its goodwill isn‘t impaired, and believes that a reasonable change assuming significantly will not lead to the carrying amount of the cash generating unit exceeds its recoverable amount.

(b) China Metallurgical Building belong to Beijing Guangyuanli Real Estate Development Co., Ltd., was overall sold on March and was prepared on the full amount of goodwill impairment on the later of 2010.

(c) The recoverable amount of cash-generating unit is determined by the calculation benchmark of the value in use. Its recoverable amount is based on certain key assumptions. All the calculation methods of the value in use are based on the cash flow projections of the five-year financial budgets approved by management, pre-tax discount rate of 13%. The cash flow projections of cash-generating unit during the budget period are determined by the expected growth rate and gross margin in the budget period. The growth rate of the budget is determined according to the expected growth rate of the industry. The gross margin budget is determined based on past performance and management's expectations of market development.

On December 31, 2011, the Group's management believes that its goodwill isn't impaired, and believes that any reasonable change assumption significant will not lead to the carrying amount of the cash generating unit exceeding its recoverable amount.

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(21) Long-term unamortized expenses

31 Addition Decrease 31 The reason of December current current Other dec December other decreas 2011 year year rease 2010 e

Long-term unamortized expenses 53,826.48 8,120.65 5,725.23 374.28 55,847.62 —

The top ten projects in which is： Soil preparation cost of MCC Meili Paper Industry Co.,Ltd 23,754.74 0.00 1,079.76 0.00 22,674.98 Not applicable Soil preparation cost of MCC Meili Forestry Industry Co.,Ltd 16,942.80 1,829.80 453.56 0.00 18,319.04 Not applicable Development and consolidation of compensation of Tangshan Northern Construction Co.,Ltd 3,606.20 333.18 796.75 0.00 3,142.63 Not applicable Ning County grand Mining Co., Ltd. Spoibank land lease costs 1,400.30 490.70 126.79 0.00 1,764.21 Not applicable Tibet Huaxia Mining Co. Ltd 12, 13 ore body exploration costs 0.00 1,435.19 0.00 0.00 1,435.19 Not applicable Foshan Yechuang Metal Products Co., Ltd plant leasing costs 1,050.50 105.07 230.41 0.00 925.16 Not applicable China the nineteen Metallurgical Group Co., Ltd. Panjianjinjie Raw material Factory costs 615.22 0.00 36.84 0.00 578.38 Not applicable Chaoyang Jinchang Mining Co.,Ltd Land lease costs 484.50 0.00 25.50 0.00 459.00 Not applicable Tianjin MCC 20th Construction Co., Ltd. Nanyang office renovation costs 0.00 500.00 66.67 0.00 433.33 Not applicable Shenzhen Overseas Decoration Engineering Company office building Renovation costs 471.31 0.00 157.10 0.00 314.21 Not applicable

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(22) The assets restricted Ownership

Addition current Decrease current The assets restricted Ownership 31 December 2010 year year 31 December 2011

Monetary capital 238,519.96 287,484.28 226,329.08 299,675.16 Notes receivable 39,741.14 52,044.75 35,421.66 56,364.23 Accounts receivable 175,161.55 228,897.91 31,927.40 372,132.06 Good in Stock 810,300.75 565,019.59 403,183.17 972,137.17 Investment property 3,114.20 651.05 105.51 3,659.74 Fixed assets 450,967.87 31,117.32 232,480.78 249,604.41 Construction in process 43,958.08 0.00 31,669.82 12,288.26 Intangible assets 314,396.84 27,771.96 108,259.59 233,909.21 Others 93,388.49 316,794.96 73,388.49 336,794.96 2,169,548.88 1,509,781.82 1,142,765.50 2,536,565.20

Limited reasons Mortgage Pledge Freeze Other reasons Total

Monetary capital 0.00 10,924.97 8,172.71 280,577.48 299,675.16 Notes receivable 0.00 56,364.23 0.00 0.00 56,364.23 accounts receivable 0.00 327,732.06 0.00 44,400.00 372,132.06 Other receivables 0.00 90,000.00 0.00 0.00 90,000.00 Good in Stock 905,054.08 0.00 722.25 66,360.84 972,137.17 Investment property 3,659.74 0.00 0.00 0.00 3,659.74 Fixed assets 249,169.51 0.00 434.90 0.00 249,604.41 Construction in process 12,288.26 0.00 0.00 0.00 12,288.26 Intangible assets 224,050.21 0.00 0.00 9,859.00 233,909.21 Long-term account Receivable 0.00 226,794.96 0.00 0.00 226,794.96 Other 0.00 20,000.00 0.00 0.00 20,000.00 1,470,441.64 731,816.22 9,329.86 324,977.48 2,536,565.20

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(23) Short-term borrowing

31 December 2011 31 December 2010

Guaranteed loan (a) - Mortgage 182,402.19 343,793.34 Pledge 338,340.37 185,794.52 Guaranteed 28,875.00 36,190.00 Fiduciary Loan 5,627,399.31 2,899,902.46 6,177,016.87 3,465,680.32

(a) For the situations of Bank Secured loans Collaterals and bank Loan collaterals on December 31, 2011 and December 31, 2010, see appendix 8 (22).

(b) The Group has not any overdue short-term borrowings till December 31, 2011。

The weighted average annual interest rate Of the long-term loans is 7.43% on 31 December 2011(31 (c) December 2011: 7.43%)

(24) Notes payable

31 December 2011 31 December 2010

Banker's acceptance 930,737.09 925,226.07 Trade acceptance 37,703.88 22,275.42 968,440.97 947,501.49

(25) Account receivable 31 December 2011 31 December 2010

Within 1 year 4,096,736.62 4,087,683.34 1 to 2 years 932,652.17 800,439.09 2 to 3 years 286,409.55 308,729.46 Over 3 years 254,055.41 169,938.09 5,569,853.75 5,366,789.98

(a) Top five significant accounts payable aging more than a year

The amount owed Outstanding reasons

Tianjin hongqiao district construction management committee 29,932.29 Not yet final accounts Tianjin land consolidation center 20,000.00 Not yet final accounts The real estate administration of Nanjing JianYe District 12,472.00 Not yet final accounts Dongxu Constructional Engineering Co.,Ltd og Haicheng City 11,707.88 Not yet final accounts Qinghai Qiaotou Aluminum & Power Co., Ltd. 10,324.52 Not yet final accounts

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(26) account collected in advance

31 December 2011 31 December 2010 Sum Per(%) Sum Per(%)

Within 1 year 3,896,918.50 86.69 3,744,347.25 88.98 1 to 2 years 468,434.21 10.42 298,671.40 7.10 2 to 3 years 44,056.02 0.98 134,238.00 3.19 Over 3 years 86,062.28 1.91 30,812.95 0.73 4,495,471.01 100.00 4,208,069.60 100.00

(a) op five significant advance payments aging over a year

The name of the debt unit The amount owed Outstanding reasons

Citic Pacific Mining 143,242.33 Not yet final accounts Libya Management Center development agencies (ODAC) 35,557.69 Not yet final accounts Brazilian CSN Company 28,330.34 Not yet final accounts Tangshan Bohai Iron and Steel Co., Ltd 25,900.00 Not yet final accounts Shanghai Pudong Construction Management Co., Ltd. 18,885.00 Not yet final accounts

(27) Employee pay payable 31 December Addition curr Decrease curr 31 December 2011 ent year ent year 2010

Wage, bonus, allowances and subsidies, etc subsidies Employee benefits 145,866.04 1,203,521.40 1,174,617.02 174,770.42 Welfare expense of employee 355.35 48,772.29 48,809.14 318.50 Social security fee 7,145.57 361,894.17 339,355.87 29,683.87 Including: Basic medical insurance premiums 0.00 75,639.78 73,525.66 2,114.12 Supplementary medical insurance 0.00 4,584.55 1,592.39 2,992.16 The basic pension insurance 0.00 197,576.13 177,513.64 20,062.49 Supplementary pension insurance (annuity) 7,145.57 48,022.84 52,026.89 3,141.52 Unemployment insurance expense 0.00 16,868.32 15,743.15 1,125.17 Industrial injury insurance premium 0.00 6,688.72 6,607.21 81.51 Maternity insurance 0.00 4,242.31 4,099.74 142.57 Housing costs 381.51 100,747.10 89,552.39 11,576.22 Union funds and employee education expenses 40,092.46 33,986.08 27,091.93 46,986.61 Non-monetary benefits 0.00 24.70 24.70 0.00 Termination benefits 3,904.70 14,414.99 13,873.32 4,446.37 Others 3,259.79 30,713.13 29,082.36 4,890.56 201,005.42 1,794,073.86 1,722,406.73 272,672.55

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(28) Taxes and dues payable

addition current Decrease current 31 December 31 December 2011 period period 2010

Value added tax payable 20,471.87 201,573.19 194,895.11 27,149.95 Consumption tax payable 135.59 2,708.77 1,502.99 1,341.37 Business tax payable 293,067.00 500,190.79 449,014.45 344,243.34 Resources tax payable 1,797.90 10,948.00 11,441.79 1,304.11 Business income tax payable 140,044.76 291,388.49 278,988.39 152,444.86 Land value increment tax 24,409.71 43,391.45 52,970.14 14,831.02 City maintenance and construction tax payable 22,497.16 43,057.13 38,915.33 26,638.96 Housing property tax ayable 2,373.55 12,989.55 12,139.57 3,223.53 Tenure tax payable 4,823.16 16,186.91 16,035.34 4,974.73 Personal income tax payable 32,614.55 97,918.90 98,252.71 32,280.74 Educational fee payable 13,473.35 30,483.36 26,518.05 17,438.66 Other taxes and dues 82,070.50 139,818.23 205,070.20 16,818.53 637,779.10 1,390,654.77 1,385,744.07 642,689.80

(29) Payable interest

31 December 2011 31 December 2010

long-term interest on borrowing of Installment payment of interest due and principal repayments 3,256.97 1,961.18 Interest on corporate bonds 69,589.52 48,248.52 Interest on short-term borrowings 31,705.64 5,149.37 Others 130.00 0.00 104,682.13 55,359.07

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(30) dividends payable

31 December 2011 31 December 2010

Panzhihua New Steel and Vanadium Co., Ltd(a) 7,538.78 5,670.60 Luoyang Silicon Group Co., Ltd 6,419.47 1,274.91 Yanshi Jinfeng Investment management Co., Ltd(b) 2,994.02 594.61 Shanghai Baosight Co.,Ltd 2,799.06 1,919.91 Panggang Group Co.,Ltd(c) 2,677.50 2,677.50 Yantai City Industrial Furnace Factory 1,924.35 1,319.94 Jinchuang Group C0.,Ltd 1,825.50 811.46 China Nonferrous Metal Mining (group)Co.,Ltd 1,825.50 811.46 Haixi Steel Group Co.,Ltd(d) 1,809.37 1,390.90 Beijing Jiabeilin Technology Co.,Ltd 1,195.78 1,493.04 Xi‘an Shanggu Power Co.,Ltd 874.71 599.97 Individual Shareholders 705.75 495.08 Anshan Ironand Steel Group Cooperation 603.39 414.18 Shanxi Yayan Equipment Factory 349.88 239.99 Chongqing Chuanyi Automation Co.,Ltd 349.88 239.99 Beijing Century XINGHE Investment Co.,Ltd 265.55 186.28 Wuhan Yijia Investment Co.,Ltd 186.70 175.50 Shenzhen Ruilaien Industrial Co., Ltd 177.42 121.77 Wuhan Iron and Steel (group)Corp. 139.87 463.23 Others 1,667.94 9,366.41 36,330.42 30,266.73

(a) Dividend payment to Panzhihua New Steel and Vanadium Corporation was suspended for more than a year because the company has other debts overdue to the Group, the two parties are negotiating about debt off-setting

(b) Dividend payment to Yanshi Jinfeng Investment and Management was suspended for more than a year because the two parties are negotiating about capital increase;

(c) Dividend payment to Panzhihua Iron and Steel(Group) Co., Ltd was suspended for more than a year because the company has other debts overdue to the Group, the two parties are negotiating about debt off-setting;

(d) Dividend payment to Haixin Iron and Steel (Group) Co., Ltd was suspended for more than a year because the company has other debts overdue to the Group, the two parties are negotiating about debt off-setting.

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(31) Other payables

31 December 2011 31 December 2010

Within 1 year 667,224.82 628,738.45 1 to 2 years 248,900.95 174,988.79 2 to 3 years 149,045.22 85,645.52 Over 3years 133,309.47 85,052.79 1,198,480.46 974,425.55

(a) Top five significant other payables aging more than a year

The name of the debt unit The amount owed Outstanding reasons

Cape Lambert Resources Ltd 51,274.40 Not yet final accounts The Financial Bureau of Dalian High-tech Industrial Park 32,289.94 Not yet final accounts Tangshan Caofeidian Investment Co., Ltd 28,881.47 Not yet final accounts Huludao Bank Co., Ltd. 14,735.31 Not yet final accounts Shanxi Meijin Iron and steel Co.,Ltd 10,577.73 Not yet final accounts

(32) Non-current liabilities due within one year

31 December 2011 31 December 20110

Long-term borrowings due within one year (a) 1,690,718.04 853,638.93 Bonds payable due within one year 0.00 0.00 Expected liabilities due within one year 63,219.40 60,367.88 Current portion of long-term borrowing 87,188.04 219,469.15 Other long-term liabilities due within one year 745.00 45.00 1,841,870.48 1,133,520.96

(a) Long-term borrowings due within one year

31 December 2011 31 December 2010

Guaranteed loan - Pledged 127,450.21 50,989.32 Mortgaged 74,805.71 30,000.00 Guaranteed 31,606.25 76,290.00 fiduciary loan 1,456,855.87 696,359.61 1,690,718.04 853,638.93

(33) Other current liabilities

31 December 2011 31 December 2010

Short-term debentures 1,700,000.00 1,835,000.00 Government grants to be recorded in the income statement whining 1 year 2,206.84 1,281.72 1,702,206.84 1,836,281.72

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8 Notes to the consolidated financial statements(Continued)

(34) Long-term borrowings:

Guaranteed loan(a) - 31 December 2010 31 December 2010 Pledged 496,303.17 377,322.66 Mortgaged 319,896.66 143,000.00 Guaranteed 74,590.00 97,290.00 Unsecured loan 4,243,898.76 4,101,264.53 5,134,688.59 4,718,877.19 Less: current portion of long-term borrowings 1,690,718.04 853,638.93 3,443,970.55 3,865,238.26

(a) For the situations of Bank Secured loans Collaterals and bank Loan collaterals on December 31, 2011 and December 31, 2010, see appendix 8 (22);

(b) As at 31 December 3010, the group has no overdue long-term borrowings。

(c) The weighted average annual interest rate Of the long-term loans is 5.11% on 31 December 3011(31 December 3011: 5.11%)

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(35) Debenture payable

Current ye Current year 31 December 2010 ar reducti 31 December 2010 additions on

Fixed rate corporate 350,000.00 0.00 0.00 350,000.00 bond Medium-term note 1,778,193.44 56,236.08 0.00 1,834,429.52 Dollar bond 0.00 312,000.37 0.00 312,000.37 MCC Meili Paper 59,370.86 235.93 0.00 59,606.78 Industry Co.,Ltd. 2,187,564.30 368,472.37 0.00 2,556,036.67

Face value Issuing date Bond period Release amount ending balance

Corporate bond 350,000.00 22/08/2011 10years 350,000.00 350,000.00 Corporate 1,000,000.00 23/08/2011 10years 997,111.00 1,005,228.56 Medium-term note(a) Corporate 470,000.00 24/08/2011 5years 468,640.00 469,200.96 Medium-term note (b) Dollar bond 332,210.00 25/08/2011 5years 318,843.19 312,000.37 Corporate 50,000.00 26/08/2011 5years 50,000.00 50,000.00 Medium-term note Corporate 310,000.00 27/08/2011 5years 310,000.00 310,000.00 Medium-term note MCC Meili Paper 60,000.00 28/08/2011 5years 60,000.00 59,606.78 Industry Co.,Ltd. Short-term 400,000.00 29/08/2011 1year 400,000.00 400,000.00 debentures(c) Short-term 300,000.00 30/08/2011 1year 300,000.00 300,000.00 debentures(d) Short-term debentures 1,000,000.00 31/08/2011 1year 1,000,000.00 1,000,000.00 (e) 4,272,210.00 4,254,594.19 4,256,036.67

Less: bonds payable list in other current liabilities

Short-term ebentures 400,000.00 03/08/2011 1year 400,000.00 400,000.00 Short-term ebentures 300,000.00 30/08/2011 1year 300,000.00 300,000.00 Short-term ebentures 1,000,000.00 12/10/2011 1year 1,000,000.00 1,000,000.00 1,700,000.00 1,700,000.00 1,700,000.00

2,556,036.67

Which the interest payable analysis as follows:

Interest payable in Interest payable Interest paid current initial period current period period Interest payable term period

Bonds payable 48,248.52 177,467.23 156,126.23 69,589.52

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(36) Long-term payable

31 December 2011 31 December 2011

Financial lease payable 134,080.58 147,997.10 Equity financing payable 56,586.66 257,371.42 Others 53,550.82 36,828.91 244,218.06 442,197.43 Less: current portion of long-term borrowing 87,188.04 219,469.15 157,030.02 222,728.28 The highest balance of top five：

Bank of Communications Finance Leasing 45,886.29 63,662.76 New Century International Leasing Co., Ltd 41,041.77 52,999.56 China Construction Bank Co.,Ltd Anhui 12,500.00 0.00 Province Branch Shanghai Tengfei Leasing Co., Ltd 6,390.61 0.00 CMB Financial Leasing Co.,Ltd 1,552.90 2,873.01

(37) Special payment

31 December Current year Current year 31 December

2010 additions reduction 2011

Special payment 8,649.75 33,984.74 29,265.86 13,368.63 Less: within 1 year special account 45.00 745.00 payment 8,604.75 12,623.63

The highest balance of top five：

Jiugong Temple Jijiang Village 0.00 32,865.45 20,850.45 12,015.00 Demolition Money Treasury Bonds designed loanable 315.00 0.00 45.00 270.00 Funds Science and technology three terms 12.40 206.65 39.65 179.40 cost Home buying subsidy 104.88 0.00 24.42 80.46 Scientific research subsidy 29.70 0.00 0.00 29.70

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(38) anticipation liabilities

31 December Current year Current year 31 December

2010 addition reduction 2011 The welfare of retired and retired inside 621,495.00 46,722.12 64,517.30 603,699.82 staff(a) Offering external 2,603.10 3,000.00 0.00 5,603.10 guarantee discount of the Trade 0.00 0.00 0.00 0.00 Acceptance Pending litigation or a 5,339.79 2,630.87 5,303.47 2,667.19 pending arbitration Product quality assurance 174.26 927.70 433.63 668.33 Environmental recovery 0.00 3,572.86 0.00 3,572.86 preparation Others 53.19 660.82 45.09 668.92 629,665.34 57,514.37 70,299.49 616,880.22

Less: expected liabilities 60,367.88 63,219.40 due within one year 569,297.46 553,660.82

The Group provides supplemental pension benefits and medical benefits after retirement to a specific number of retired employees and provides early retirement benefits to early retirement employees. The post-employment mentioned above is designed as special benefit plan and its related liabilities should be (a) calculated annually by independent qualified actuaries using the projected unit credit method and confirm the present value of the defined benefit plan onthe balance sheet date in the balance sheet, and should make adjustments for unrecognized actuarial earnings or losses and past service cost

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(39) Deferred tax assets and deferred liabilities

Not offset deferred tax assets and deferred income tax liabilities are as follows：

(a) Deferred tax assets:

31 December 2011 31 December 2010 Deductible Deductible Deferred tax Deferred tax temporary temporary assets assets differences differences

Provision for impairment 120,251.87 539,386.64 90,253.43 407,775.95 of assets Charge in fair value of available-for-sale financial assets Unrealised profit on 0.00 0.00 0.00 0.00 intercompany transaction Depreciation of fixed assets and amortization 0.00 0.00 0.00 0.00 of intangible assets Offset internal unrealized 24,677.19 121,073.62 22,689.94 103,257.30 profits Estimated liabilities 63,349.81 259,230.05 64,590.87 267,852.05 Deductible loss 12,641.23 50,564.91 2,866.73 11,500.60 Supplementary pension 24,565.97 119,623.52 22,518.02 97,610.02 Others 21,919.80 99,679.21 17,159.81 88,446.10 267,405.87 1,189,557.95 220,078.80 976,442.02

The analysis of the Group unrecognizing deferred income tax assets for deductible temporary difference and (b) deductible loss is as follows:：

31 December 2011 31 December 2010 Deductible temporary differences 1,122,957.37 556,414.12 Deductible loss 1,400,805.70 868,460.25

2,523,763.07 1,424,874.37

31 December 2011 31 December 20110

Within 1 year 31,199.93 1,312.48 1 to 2 years 285,884.50 31,871.62 2 to 3 years 249,507.72 289,165.02 3 to 4 years 291,493.29 252,558.13 Over 4 years 542,720.26 293,553.00 1,400,805.70 868,460.25

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(39) Deferred income tax assets and liabilities (Continued)

(d) Deferred tax liabilities

31 December 2011 31 December 2010 Taxable Deferred tax Taxable temporary Deferred tax temporary liabilities differences liabilities differences

Business combination involving entities not under common control 33,898.07 135,592.29 38,046.13 152,283.53 Changes in fair value of available-for-sale financial assets included in the capital reserve 6,430.32 26,540.87 10,795.41 44,310.66 Safety fund Others 12,110.33 51,463.24 5,647.05 24,950.71 52,438.72 213,596.40 54,488.59 221,544.90

(e) The net balances of deferred tax assets and deferred tax liabilities after offsetting are as follows:

31 December 2011 31 December 2010 Deferred tax assets, net 267,405.87 220,078.80 Deferred tax liabilities, net 52,438.72 54,488.59

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(40) Other non-current liabilities

Current year Current year 31 December 2010 additions reductions 31 December 2011 Notes

Deferred revenue(a) 100,484.92 107,287.88 20,453.55 187,319.25 —— Others 1,291.09 57.72 592.26 756.55 —— 101,776.01 107,345.60 21,045.81 188,075.80

(a) Deferred revenue

Current Current year Current year year return Project/type 31 December 2010 additions reductions 31 December 2011 reasons

Scientific research subsidy 26,382.94 13,666.65 4,983.36 35,066.23 Investment subsidy 25,547.32 5,820.00 1,554.95 29,812.37 Housing demolition subsidy 6,305.85 27,219.19 4,711.62 28,813.42 Leaseback 1,492.21 0.00 301.39 1,190.82 Other deferred revenue 42,038.32 60,582.04 7,977.11 94,643.25 101,766.64 107,287.88 19,528.43 189,526.09

Less: the government grants expected to be recognized in profit within a year 1,281.72 2,206.84 100,484.92 187,319.25

(b) The government grants recognized in the income statement see appendix 8 (52).

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(41) Paid-in capital

31 December 2010 31 December 2011 Proportion of Current Current Proportion of Investment total balance year year Investment total amount (%) additions reductions amount balance(%)

SASAC 902,142.14 100.00 16.00 0.00 902,158.14 100.00 902,142.14 100.00 16.00 0.00 902,158.14 100.00

(42) Capital reserves Current 31 December Current year 31 December 2010 year additions reductions 2011

Capital premium 1,998,301.87 0.00 0.00 1,998,301.87 Other capital reserves - Other rights and interests changes of the invested units counted by equity law 0.00 0.00 0.00 0.00 Fair value changes for available-for-sale financial assets 0.00 0.00 0.00 0.00 Income tax impact relevant to projects included in owner‘s equity 0.00 0.00 0.00 0.00 Others 727,357.11 17,232.05 15,476.71 729,112.45 Capital reserve surplus of original system 0.00 0.00 0.00 0.00 2,725,658.98 17,232.05 15,476.71 2,727,414.32

Notes: Capital reserve surplus at the end of the period increased 17,553,400 Yuan compared with the beginning of the period, the current changes mainly include: branch offices draw 8,563,500 Yuan for free according to the local government arrangement or national law, the net amount of fair value included in rights and interests reduces 80,280,500 Yuan, net amount of trading with minority shareholders and others increased 106,397,300 Yuan.

(43) Special reserves 31 Current year Current year December 2010 additions reductions 31 December 2011

Special reserves 805.49 94,341.15 94,341.15 805.49

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(44) Surplus reserves

31 Current year Current year 31 December December 2010 additions reductions 2011

Legal surplus reserves 0.00 0.00 0.00 0.00 Free surplus reserves 0.00 0.00 0.00 0.00 Reserve fund 0.00 0.00 0.00 0.00 Enterprise expansion fund 0.00 0.00 0.00 0.00 Profits capitalized on return of investment 0.00 0.00 0.00 0.00 Other surplus reserves 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

(45) Undistributed profits

31 December 2011 31 December 2010

Balance at 1 January 2010 (before adjustment) 6,038.31 -237,095.98 Adjustment (a) 0.00 56,216.40 Balance at 1 January 2010 (after adjustment) 6,038.31 -180,879.58 Current year additions -258,327.33 200,975.89 Including: Transfer in of net profit -258,327.33 200,975.89 Other additions 0.00 0.00 Current year reductions 18,088.00 14,058.00 Including: Appropriation to surplus reserves 0.00 0.00 Profit distribution to equity owners 18,088.00 14,058.00 Profit distribution to stock dividend 0.00 0.00 Increased capital 0.00 0.00 Other reductions 0.00 0.00 Balance at 31 December 2011 -270,377.02 6,038.31 Including: Cash dividends approved by the Board of Directors 0.00 0.00

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(46) Revenue and cost of sales

2011 2010 Revenue Cost of sales Revenue Cost of Sales

Main operations —Construction contract（i） 17,303,687.89 15,319,264.75 14,781,642.65 13,130,343.23 —Equipment 1,849,258.88 1,685,306.76 manufacturing 1,929,495.50 1,840,143.23 —Resources development 1,141,493.37 938,704.53 1,048,857.85 785,591.06 —Real estate 1,839,239.55 1,494,940.86 2,448,029.55 1,853,279.65 —Paper industry 1,111,182.04 1,023,279.14 766,279.80 647,553.38 —Others 688,577.16 637,959.31 597,848.13 635,319.86

Other operations —Sales of raw materials 339,670.79 344,129.36 107,856.13 113,393.96 —Operating lease 13,460.34 7,022.18 8,585.34 6,546.96 —Others 30,056.82 18,230.59 24,461.27 11,104.65 24,316,626.85 21,468,837.47 21,713,056.22 19,023,275.98

(i) By the day of 31 December, 2011, The Group cannot make reliable estimations of the contract results due to the fact that the contract amount of some construction contracts are uncertain probably because they are still under negotiation, or because some contract amounts have to be negotiated and confirmed based on the results of the special audit on the project cost after the constructions complete. This kind of contract amount account for less than 6% of the total amount of the current construction contracts. By 31 December 2011, based on the estimation of the company, the cost to complete the construction of these contracts is about 6.5 billion. Although the results of these contracts depends on the subsequent special audit results or negotiations of the project cost, The Group estimated that the contract costs already incurred and completed and the estimated contract cost to be incurred will be incurred and will all be retrieved, thus income can be confirmed by the actual cost; gross profit cannot be confirmed and there is no need to counting and drawing predicted contract loss. The Group will keep paying attention to the special audit result or negotiation result of the project cost of that kind of contracts, and when The Group find that they cannot retrieve the contract cost or when the estimated contract total cost exceeds the total income of the contract, current expenses will be confirmed on the date when The Group finds it out. When the factor that makes the construction cost result unreliable disappears, contract income, cost and possible gross profit will be confirmed according to the proportion of the work done.

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(46) Revenue and cost of sales (continued)

(a) Top 10 revenue from construction contracts this year are as follows:

Total contract Total recognized Total recognized Contract project amount revenue gross profit Amount settled

1. Fixed price contract

SINO IRON Contracting project 2,663,588.92 2,221,400.81 0.00 1,632,903.73 Baise to Jingxi highway engineering 574,518.00 135,917.00 10,024.00 123,912.00 Angang coke oven Fourth period transformation large-sum contract project 128,785.47 103,794.83 6,311.02 109,182.41 Jinghai Daqiuzhuang demonstration small cities and towns projects 310,662.69 92,946.98 7,523.30 0.00 Hengqin new area roundabout island arterial and minor arterial roads municipal administration project 226,507.10 92,826.66 15,224.39 104,090.40 Wuhan second ring road Hankou section project 236,800.00 156,264.06 24,731.06 163,166.39 Chifeng Songshan district nortern city construction first-stage reconstruction project 467,340.84 115,541.01 33,704.52 58,517.35 Zhuhai Hengqin new area roundabout island northern arterial and minor arterial municipal administration project 233,512.47 100,551.33 6,758.36 0.00 Fanxi base hot rolling project lump sum 154,137.65 100,947.01 15,504.40 75,400.59 Anshan city Laodong Road Primary School north indemnificatory apartment project 120,000.00 88,505.26 7,278.74 95,784.00

2. Straight cost plus contract

Shenyang Mazong new country indemnificatory apartment entrust construction contract 245,274.14 74,143.43 5,931.47 48,101.60 Bingjiang Project 877,369.75 67,718.67 6,642.17 20,000.00 Luodian large resident community indemnificatory apartment first-stage project 400,000.00 164,041.04 510.36 0.00 Zixi Meilin indemnificatory apartment project 112,699.73 51,272.01 3,308.03 54,580.04 Qinhuangdao new resident project 238,778.44 231,643.72 7,134.72 68,998.90 Yangzhou west lake Parkview housing placement project 87,050.00 40,258.39 2,993.52 43,251.91 Luoyang second-stage extension 2000t/a polycrystalline silicon high-tech industrialization project 93,024.83 77,541.80 8,501.86 86,043.66 Tangshan stainless steel 1580mm rolling mill project 41,971.39 24,806.30 2,887.87 27,694.17 Kunpeng Copper Company 100 thousand t/a anode copper project general contract 32,085.65 26,488.67 1,029.09 28,663.52 Beijing shougang tang steelmaking and continuous casting system engineering 42,760.00 14,766.96 1,018.92 15,785.88

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(47) Taxes and surcharges

2011 2010

Business tax 472,603.20 446,070.62 City maintenance and construction tax 41,899.89 37,094.15 Educational surcharge 25,558.62 19,117.53 Land appreciation tax 68,851.21 13,759.31 52,859.77 68,851.21 Others 27,853.42 24,583.06 620,774.90 595,716.57

(48) Financial expenses - net 2011 2010

Interest expenses 539,119.14 390,207.64 Less: Interest income 165,877.04 84,072.15 Exchange gains or losses 35,479.09 13,544.00 Others 93,816.34 48,835.00 502,537.53 368,514.49

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(49) Asset impairment losses

2011 2010

Bad debts 124,416.27 103,706.80 Declines in values of inventories 63,988.24 37,320.72 Impairment of long-term equity investments 1,459.60 1,009.21 Impairment of investment real estate 0.00 0.00 Impairment of fixed assets 316,985.09 20,279.17 Impairment of construction in progress 51,427.33 7,613.28 Impairment of intangible assets 34,114.77 0.00 Impairment of goodwill 4,215.95 5,578.72 Others 294.89 2,339.70 596,902.14 177,847.60

(50) Profit arising from changes in fair value

2011 2010

Financial assets held for trading 148.35 -51.81 Others 0.00 0.00 148.35 -51.81

(51) Investment income

2011 2010

Profit / cash dividends declared by investees under cost method 7,135.06 6,162.78 Share of profit of investees under equity method 5,462.07 14,123.66 Income from disposal of long-term equity investments 76,950.90 7,480.60 Income from held-to-maturity financial assets held for trading 74.46 41.33 Income from held-to-maturity investments 0.00 138.20 Income from held-to-maturity available-for-sale financial assets investments 209.61 797.30 Income from disposal of financial assets held for trading 461.14 508.78 Income from disposal of held-to-maturity investments 2,216.94 636.99 Income from disposal of available-for-sale financial assets 19,917.11 9,003.91 Others 581.12 1,211.12 113,008.41 40,104.67

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(52) Non-operating income and expenses

(a) Non-operating income 2011 2010

Gain on disposal of non-current assets 28,175.37 9,552.84 Including: Gain on disposal of fixed assets 10,606.13 0.00 Gain on disposal of intangible assets 16,835.07 0.00 Gain on disposal of non-monetary assets 0.00 1.96 Gain on debt restructuring 686.67 6,058.95 Government grants (i) 77,299.35 63,623.08 Gain on inventories 147.41 76.62 Penalty income 5,276.71 1,949.39 Others 22,479.29 9,582.37 134,064.80 90,845.21

(i) Government grants

2011 2010 instruction

Baoshan luodian development zone tax return 5,205.75 0.00 Luodian town house tax return Yushuiqu Fund for financial support of the Management Committee of yuanhe River Enterprise Development Fund 4,644.43 184.70 industrial platform Development subsidies 4,300.00 2,310.51 Local regulations Infrastructure village's demolition land demolition compensation 4,126.81 0.00 Land relocation and compensation Sino iron ore, iron ore, Lambert point of finance investment interest 3,497.70 2,330.26 Financial interest Infrastructure village areas land Infrastructure village areas land transfer payment refund 3,402.33 0.00 transfer payment refund Ministry of finance allocated operating Ministry of finance allocated expenses 3,209.37 2,211.66 operating expenses Tax return 2,889.45 1,997.61 Tax return Tieshanping project grants 2,000.00 0.00 Tieshanping project grants Financial enterprise support Fund Financial enterprise support Fund Awards 1,867.32 2,539.60 Awards Management Committee of hangu district financial support funds 1,794.20 0.00 Financial support Fund Tax return 1,650.15 347.03 Tax return Retired personnel of the Retired personnel of the Department Department of science and of science and technology subsidies 1,350.57 0.00 technology subsidies Tax return 1,341.94 2,016.57 Tax return Technical innovation of industrial Technical innovation of industrial capital account funds 1,219.70 0.00 capital account funds Project payments 1,204.25 18.75 Project payments Land relocation and compensation 1,170.00 0.00 Land relocation and compensation Tax return 1,081.19 0.00 Tax return Financial subsidies 1,000.00 12.92 Financial support Fund others 30,344.19 49,653.47 77,299.35 63,623.08

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(52) Non-operating income and expenses (Continued)

(b) Non-operating expenses

2011 2010

Loss on disposal of non-current assets 17,302.64 9,318.86 Including: Loss on disposal of fixed assets 9,209.43 0.00 Loss on disposal of intangible assets 8,080.55 0.00 Loss on debt restructuring 184.16 439.88 Donation expense 15.38 986.50 Inventory losses 7,819.07 336.56 Fine charges 3,567.58 1,785.88 Penalty expense 2,860.64 1,835.77 Loss on pending litigation 5,496.05 11,399.89 Others 2,574.52 269.72 39,820.04 26,373.06

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(53) Income tax expenses

2011 2010

Current income tax 288,585.33 235,758.94 Deferred income tax -42,732.42 -31,271.27 245,852.91 204,487.67

The reconciliation from income tax calculated based on the applicable tax rates and total profit presented in the consolidated financial statements to the income tax expenses is listed below:

2011 2010

Total profit 51,049.48 584,363.90

Income tax expenses calculated at statutory tax rates (25%) 12,762.37 146,090.98 Effect of difference between applicable tax rate and statutory tax rate -49,811.30 -47,894.38 Tax losses for which no deferred income and Other temporary differences and Utilisation of unrecognized during previously year 276,980.03 109,646.81 Income not subject to taxation -5,573.54 -9,506.27 Paid the previous annual income tax 8,263.92 419.78 Expenses not deductible for tax purpose 21,121.99 19,961.75 Additional tax relief -16,776.21 -15,146.88 Utilisation of previously unrecognised tax losses -2,425.78 -13,065.44 Others 1,311.43 13,981.32 Income tax expenses 245,852.91 204,487.67

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(54) Other comprehensive income

2011 2010

Gain arising from available-for-sale financial assets 1,740.30 3,606.76 Less: Income tax relating to available-for-sale financial assets 504.17 18.38 Net amount of reclassifications from other comprehensive income to profit or loss 14,341.67 3,955.22 Subtotal -13,105.54 -366.84 Share of other comprehensive income of investees accounted for using the equity method 0.00 0.00 Less: Income tax relating to share of other comprehensive income of investees accounted for using the equity method 0.00 0.00 Net amount of reclassifications from other comprehensive income to profit or loss 0.00 0.00 Subtotal 0.00 0.00 Gains/(losses) from cash flow hedging instruments 0.00 0.00 Less: Income tax relating to cash flow hedging instruments 0.00 0.00 Net amount of reclassifications from other comprehensive income to profit or loss 0.00 0.00 The adjustment to initially recognized amount of items transferred to hedging instruments 0.00 0.00 Subtotal 0.00 0.00 Exchange differences arising from translating foreign operations -17,561.79 -6,954.90 Less: Net amount transferred to profit or loss arising from the disposal of foreign operations 0.00 0.00 Subtotal -17,561.79 -6,954.90 Others 0.00 0.00 Less: Income tax relating to others 0.00 0.00 Net amount of reclassifications from other comprehensive income to profit or loss. 0.00 0.00 Subtotal 0.00 0.00

Total -30,667.33 -7,321.74

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(55) Notes to consolidated cash flow statements

(a) Reconciliation from net profit to cash flows from operating activities

2011 2010

Net profit -194,803.43 379,876.23 Add: Provisions for assets impairment 596,902.14 177,847.60 Fixed assets and investment real estate depreciation 309,166.93 260,202.88 Amortisation of intangible assets 43,510.90 39,301.35 Amortisation of long-term prepaid expenses 5,271.67 3,631.86 Gains on disposal of fixed assets, intangible assets and other long-term assets -10,872.73 -233.98 Losses on scrapping of fixed assets 318.04 314.31 Losses/(gains) on change in fair value -148.35 51.81 Financial expenses 487,577.37 403,751.64 Investment income -113,008.41 -40,104.67 Increase in deferred tax assets -47,046.16 -30,454.50 Decrease in deferred tax liabilities 4,313.74 -816.77 Increase in inventories -1,781,459.53 -3,139,874.16 Increase in operating receivables -1,519,320.31 -2,118,889.21 Increase in operating payables 869,457.57 1,406,515.44 Net cash flows from operating activities -1,350,140.53 -2,658,880.17

(b) Significant investing and financing activities that do not involve cash receipts and payments

2011 2010

Fixed assets held under finance leases 11,484.66 0.00 Others 0.00 0.00

Net increase / (decrease) in cash and cash (c) equivalents

2011 2010

Cash at end of year 4,483,034.00 4,116,308.36 Less: cash at beginning of year 4,116,308.36 5,244,092.03 Net (decrease)/ increase in cash and cash equivalents 366,725.64 -1,127,783.67

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(55) Notes to consolidated cash flow statements (Continued)

(d) Cash and cash equivalents 31 December 2011 31 December 2010

Cash at bank and on hand 4,483,034.00 4,116,308.36 Including: Cash on hand 5,175.92 6,536.14 Bank deposits readily convertible to cash 4,316,415.25 3,944,495.26 Other cash balances readily convertible to cash 161,442.83 165,276.96

Cash and cash equivalents 0.00 0.00 Including: Bond investment due within three months 0.00 0.00

Cash and cash equivalents at end of year 4,483,034.00 4,116,308.36 Including: Restricted cash and cash equivalents of the parent company and subsidiaries 0.00 0.00

(e) Net proceeds from acquisition of subsidiaries

Net proceeds from acquisition of subsidiaries see note 16.

(f) Net proceeds from disposal of subsidiaries

A, On October 31 2011, 51% of Sichuan Gore Hill Metal Co.,Ltd held by China Huaye Metallurgical Group Corporation , a subsidiary of the company , were all transferred ; B. On December 31, 2011, 51% of Fifth Kuntai ( Suzhou ) Investment Co.,Ltd held by China Fifth Group Corporation, a subsidiary of the company,were all transferred; C. On November 30, 2011, 100% of Tanghaixian ShengWei real estate development Co.,Ltd held by China Metallurgical Investment Co.,Ltd , a subsidiary of the company , were all transferred ;D. On September 30, 2011, 70% of Anhui Huaye Mining Co.,Ltd held by China Huaye Metallurgical Group Corporation , a subsidiary of the company , were all transferred; E , On December 31 , 2011 , 10% of Yichang Smelter In Heavy Machinery held by Casting Technology Engineering Co., Ltd. Of China, a subsidiary of the company , were all transferred ;F. On December 31 , 2011 , 51% of Sichuan Gore Hill Metal Co.,Ltd held by MCC Baosteel Technology Services Co.,Ltd , a subsidiary of the company , were all transferred ; G.On December 1 , 2011 , 100% of Nanjing Changjiang international shipping Center Construction Co. Ltd held by Reconstruction of Nanjing riverside city construction investment company , a subsidiary of the company , were all transferred ; Information about the disposal to date is as follows:

Amount Consideration from disposal 88,991.23 Cash and cash equivalents received from the disposal 86,138.69 Less: Cash and cash equivalents held by the Company 6,682.85 Net cash received from disposal 79,455.84

Net proceeds from disposal of subsidiaries Date of disposal 31 December 2010 Current assets 163,260.90 29,364.49 Non-current assets 12,525.68 27.04 Current liabilities 150,336.80 28,708.24 Non-current liabilities 1,550.00 0.00 Net assets 23,899.78 683.29

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(55) Notes to consolidated cash flow statements (Continued)

(f) Dispose cash received by branch offices (Continued)

Income, expense and profit branch office received from 1st January, 2011 to the disposal date are as follows: Amount Income 22,907.42 less: cost and expenses 21,152.33 Total profit 1,755.09 Less: income tax expense 656.09 Net profit 1,099.00

(g) Cash received and paid relating to other operating activities

In the cash flow statement, cash received relating to other operating activities mainly comprises:

2011 2010

Returned deposits 110,075.31 149,941.89 Cash received from other companies 47,632.72 84,720.61 Deposit return 62,729.24 5,846.93 Interest income 78,856.18 50,082.71 Subsidies, appropriations etc. 57,178.66 7,453.79 Staff-returned imprest 10,959.29 11,734.65 Collecting, withhold and remit tax fund 21,652.76 61,582.52 Others 0.00 51.81 389,084.16 371,414.91

In the cash flow statement, cash paid relating to other operating activities mainly comprises: 2011 2010

Deposits paid 424,204.39 538,123.90 Research and development expenditure 203,073.51 154,607.86 Retirement fee 61,023.23 67,800.92 Travel expenses 170,703.79 140,244.74 Administrative expenses 106,568.80 92,600.69 Entertainment expenses 55,917.72 34,003.97 Utilities fee 101,894.82 6,677.13 Repair and maintenance fee 40,296.18 31,424.89 Advertising and promotion expenses 20,571.40 13,602.20 Cash paid to other companies 35,049.88 76,639.70 Meetings and society membership fee 8,072.18 9,430.92 Others 9,386.49 8,254.71 1,236,762.39 1,173,411.63

(56) Borrowing costs

Borrowing costs capitalized and recorded as part of the cost of assets of this year is RMB 2,872,738,500 Yuan; including interest costs capitalized and recorded as part of the cost of construction in progress with an annual interest rate of 3.05% and interest costs capitalized and recorded as part of the cost of properties under development with an annual interest rate of 6.68%.

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9 Leases

(1) Finance Leases (Lessee)

(a) Fixed assets held under finance lease

Machinery an Motor vehicle Other Buildings d equipment s equipment Total

Cost 31 December 2011 0.00 162,907.54 316.00 0.00 163,223.54 31 December 2010 0.00 142,046.48 316.00 0.00 142,362.48

Accumulated depreciation 31 December 2011 0.00 6,339.12 58.49 0.00 6,397.61 31 December 2010 0.00 2,250.16 32.27 0.00 2,282.43

Provision for impairment 31 December 2011 0.00 0.00 0.00 0.00 0.00 31 December 2010 0.00 0.00 0.00 0.00 0.00

Net book value 31 December 2011 0.00 156,568.42 257.51 0.00 156,825.93 31 December 2010 0.00 139,796.32 283.73 0.00 140,080.05

(b) Minimum lease payments

Future lease payments are summarized as follows:

31 December 2011 31 December 2010 Remaining leases periods Within 1 year (including 1 year) 33,827.90 34,278.35 1-2 years (including 2 year) 37,986.30 28,271.99 2-3 years (including 3 year) 21,654.00 17,778.19 Over 3 years 83,090.60 91,726.78 176,558.80 172,055.31

On 31 December, 2011, the unconfirmed financial charge is 133,352,700 Yuan (on 31 December 2010, it was 112,008,600 Yuan).

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(2) Finance Leases (Lessor)

(a) Minimum lease receipts

31 December 20 Remaining leases periods 31 December 2011 10

Within 1 year (including 1 year) 184.50 0.00 1-2 years (including 2 year) 244.40 0.00 2-3 years (including 3 year) 205.40 0.00 Over 3 years 0.00 0.00 634.30 0.00

(3) Operating Leases (Lessee)

According to the non cancellable operating leases agreements, the future aggregate minimum lease payments are summaries as follows:

Remaining leases periods 31 December 2011 31 December 20 10

Within 1 year (including 1 year) 5,357.75 2,973.57 1-2 years (including 2 year) 797.92 5,443.37 2-3 years (including 3 year) 146.88 146.88 Over 3 years 2,413.24 2,567.98 8,715.79 11,131.80

(4) Operating Leases (Lessor)

Ending balance Transportation Other Fixed A Total Buildings equipment Tools ssets

2011 12 31 55,905.90 9,243.50 84.80 246.80 65,481.10 2010 12 31 78,190.00 14,344.50 1,669.00 171.20 94,374.70

(5) Leaseback rent is 0 Yuan in total.

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On 30 November, 2011, the Group transferred its entire interests in TangHaiXian ShengWei real estate development Co., Ltd. to another company.

On 1 December, 2011, the Group transferred its entire interests in Nanjing Yangtze river international shipping center development and construction company to another company.

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(a) Segment information as at 31 December 2011 and for the year ended 31 December 2011 is as follows:

Construction Resource Equipment Paper Undistributed Elimination contract Real estate development manufacturing industry Others amount Total

Revenue from external customers 17,737,442.84 2,076,990.03 1,248,615.29 1,403,973.01 1,274,665.71 574,939.98 0.00 0.00 24,316,626.85 Inter-segment revenue 349,381.88 0.00 21,911.86 59,491.47 0.00 58,043.62 0.00 -488,828.83 0.00 Income from investment on joint operation and joint venture enterprises 6,148.62 -412.54 -1.24 -189.27 0.00 -70.80 0.00 0.00 5,474.77 Asset impairment loss 106,535.49 8,834.68 39,529.39 357,889.89 81,730.31 2,382.38 0.00 0.00 596,902.14 Depreciation cost and amortization charge 134,004.19 91,285.71 65,749.59 4,495.46 50,822.20 9,869.33 0.00 0.00 356,226.48 Total profit 628,748.29 175,529.48 -172,177.70 -458,790.98 -125,439.53 30,669.65 -24,859.04 -2,630.69 51,049.48 Income tax expense 159,334.90 59,273.48 13,878.69 6,511.50 1,568.07 5,286.27 0.00 0.00 245,852.91 Net profit 469,413.39 116,255.99 -186,056.39 -465,302.48 -127,007.59 25,383.38 -24,859.04 -2,630.69 -194,803.43

Total assets 21,257,574.02 2,598,940.26 3,546,799.88 9,945,266.44 2,120,981.18 2,326,025.24 267,405.87 -6,043,048.61 36,019,944.28

Total liabilities 19,224,611.14 1,769,437.74 3,008,951.51 8,082,286.16 1,885,052.33 1,920,079.82 52,438.72 -5,969,305.93 29,973,551.49

Other non-cash expenses other than depreciation and amortization 104,915.66 306,913.15 39,209.21 4,618.74 80,636.40 3,295.55 0.00 0.00 539,588.71

Long-term equity investment on joint operation and joint venture enterprises 137,100.55 0.00 194.28 60,966.91 400.00 1,063.78 0.00 0.00 199,725.52

Additional amount of non-current assets other than long-term equity investment 457,983.46 245,716.53 383,647.03 16,019.77 517,943.48 10,514.44 0.00 0.00 1,631,824.71

- 104 -

(b) Segment information as at 31 December 2010 and for the year ended 31 December 2010 is as follows:

Construction Resource Equipment Paper Undistributed Elimination contract Real estate development manufacturing industry Others amount Total

Revenue from external customers 15,532,684.52 1,524,064.47 1,076,535.50 2,328,518.87 788,534.38 462,718.48 0.00 0.00 21,713,056.22 Inter-segment revenue 321,038.40 74,666.94 35,611.69 235,025.00 8,382.41 122,260.82 0.00 -796,985.26 0.00 Income from investment on joint operation and joint venture enterprises 16,267.61 -2,143.95 0.00 0.00 0.00 0.00 0.00 0.00 14,123.66 Asset impairment loss 86,189.20 63,537.43 14,497.10 9,623.72 208.73 3,791.42 0.00 0.00 177,847.60 Depreciation cost and amortization charge 118,181.42 64,758.34 56,848.84 3,115.59 45,392.48 9,342.31 0.00 0.00 297,638.98 Total profit 532,895.83 -172,326.06 7,454.39 317,535.30 8,144.55 23,544.80 -23,990.54 -108,894.37 584,363.90 Income tax expense 82,468.13 6,399.36 40,471.50 62,558.28 3,517.24 9,073.16 0.00 0.00 204,487.67 Net profit 450,427.70 -178,725.42 -33,017.11 254,977.02 4,627.31 14,471.64 -23,990.54 -108,894.37 379,876.23

Total assets 19,081,158.06 2,874,065.11 3,622,605.78 7,590,561.43 1,862,553.94 2,051,609.71 220,078.80 -5,328,672.70 31,973,960.13

Total liabilities 16,672,293.04 2,384,751.84 3,039,297.08 5,832,597.65 1,495,417.37 1,667,168.06 54,488.59 -5,279,636.04 25,866,377.59

Other non-cash expenses other than depreciation and amortization 86,539.57 54,142.28 14,517.29 4,044.99 208.73 2,718.31 0.00 0.00 162,171.17

Long-term equity investment on joint operation and joint venture enterprises 120,589.38 790.51 195.51 60,284.37 400.00 1,179.99 0.00 0.00 183,439.76

Additional amount of non-current assets other than long-term equity investment 690,141.61 253,204.86 517,267.68 10,767.93 145,022.64 76,958.47 0.00 0.00 1,693,363.19

- 105 -

The Group‘s revenue from external customers domestically and other countries/regions, and the Group‘s total non-current assets excluding financial assets and deferred tax assets domestically and other countries/regions are as follows:

Revenue from external customers 2011 2010

China 22,919,345.49 20,284,476.99 Other countries/regions 1,397,281.36 1,428,579.23 24,316,626.85 21,713,056.22

Total non-current assets 31 December 2011 31 December 2010

China 6,874,001.51 6,501,175.51 Other countries/regions 1,557,786.14 1,364,341.27 8,431,787.65 7,865,516.78

12 Commitments

(1) Significant capital commitments 31 December 2011 31 December 2010

Houses, buildings and equipment 2,669,055.20 29,294,474.00 Intangible assets 968,921.00 15,766,843.00 3,637,976.20 45,061,317.00

(2) Operating lease commitments

See appendix 9

(3) Investment abroad commitments

By 31 December 2011, the Group has no investment commitments.

106

CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 13 Contingencies (1) Guarantee Guarantee Guarantee Guarantor Secured party Item Amount Guarantee duration Joint liability MCC Meili Paper Industry Co.,Ltd Xibei Bearing Co. guarantee 1,125.00 30/12/2003 30/06/2006 Joint liability MCC Meili Paper Industry Co.,Ltd Ningxia Yinxing Energy Co., Ltd guarantee 1,000.00 11/03/2011 08/03/2012 Zhongwei Yuanming Rembau Industry Joint liability MCC Paper Group Co.,Ltd and Trade Co., Ltd guarantee 90.00 18/08/2006 24/07/2007 Zhongwei Country Chili Pigment Joint liability MCC Paper Group Co.,Ltd Factory guarantee 1,264.00 01/12/1994 01/12/1995 Wuzhong Instrumentation Group Co., Joint liability MCC Paper Group Co.,Ltd Ltd guarantee 1,800.00 28/09/2003 27/08/2004 Wuzhong Instrumentation Group Co., Joint liability MCC Paper Group Co.,Ltd Ltd guarantee 1,500.00 29/08/2003 28/08/2004 Wuzhong Instrumentation Group Co., Joint liability MCC Paper Group Co.,Ltd Ltd guarantee 1,400.00 28/11/2003 27/11/2004 Wuzhong Instrumentation Group Co., Joint liability MCC Paper Group Co.,Ltd Ltd guarantee 1,000.00 28/04/2004 27/02/2005 Wuzhong Instrumentation Group Co., Joint liability MCC Paper Group Co.,Ltd Ltd guarantee 1,900.00 04/06/2004 02/06/2005 Joint liability MCC Meili Paper Industry Co.,Ltd Xibei Bearing Co. guarantee 1,600.00 31/12/2003 30/06/2005 Joint liability MCC Meili Paper Industry Co.,Ltd Xibei Bearing Co. guarantee 300.00 31/12/2002 30/12/2006 Joint liability MCC Meili Paper Industry Co.,Ltd Xibei Bearing Co. guarantee 2,980.00 27/10/2004 26/10/2005 Joint liability MCC Meili Paper Industry Co.,Ltd Ningxia Yinxing Energy Co., Ltd guarantee 1,000.00 03/11/2011 02/11/2012 Joint liability MCC Meili Paper Industry Co.,Ltd Ningxia Yinxing Energy Co., Ltd guarantee 1,300.00 01/08/2011 31/07/2012 Joint liability MCC Meili Paper Industry Co.,Ltd Ningxia Yinxing Energy Co., Ltd guarantee 1,000.00 01/08/2011 31/07/2012 Joint liability MCC Meili Paper Industry Co.,Ltd Ningxia Yinxing Energy Co., Ltd guarantee 1,000.00 11/03/2011 08/03/2012 Joint liability MCC Meili Paper Industry Co.,Ltd Ningxia Yinxing Energy Co., Ltd guarantee 600.00 11/03/2011 03/03/2012 Joint liability MCC Meili Paper Industry Co.,Ltd Ningxia Yinxing Energy Co., Ltd guarantee 4,000.00 18/10/2011 17/10/2012 Topsun Science and technology Co., Joint liability MCC Meili Paper Industry Co.,Ltd Ltd guarantee 3,990.00 25/12/2007 10/12/2008 Topsun Science and technology Co., Joint liability MCC Meili Paper Industry Co.,Ltd Ltd guarantee 1,830.00 06/06/2005 06/06/2006 Joint liability MCC Meili Paper Industry Co.,Ltd Shaanxi Topsun Medical Co., Ltd guarantee 507.54 25/12/2007 10/12/2008 Joint liability MCC Meili Paper Industry Co.,Ltd Shaanxi Topsun Medical Co., Ltd guarantee 2,144.12 25/12/2007 10/12/2008 Joint liability MCC Meili Paper Industry Co.,Ltd Shaanxi Topsun Medical Co., Ltd guarantee 2,385.00 20/03/2007 20/03/2008 Joint liability MCC Meili Paper Industry Co.,Ltd Ningxia Yinxing Energy Co., Ltd guarantee 1,300.00 27/11/2011 28/11/2012 Joint liability MCC Meili Paper Industry Co.,Ltd Xibei Bearing Co. guarantee 240.00 31/12/2003 30/12/2006 Joint liability MCC Meili Paper Industry Co.,Ltd Xibei Bearing Co. guarantee 600.00 31/12/2003 30/05/2006 Joint liability Huludao Zinc Industry Co.,Ltd Jincheng Paper Co., Ltd guarantee 3,000.00 19/11/2003 17/08/2004 China Metallurgical Group Joint liability Corporation Handan Iron & Steel Group Co.,Ltd guarantee 2,876.12 19/12/2003 19/12/2015 Hebei Steel Group Luan County Joint liability China 22 MCC Group Co., Ltd Sijiaying Iron Ore Co., Ltd guarantee 2,058.00 07/09/2007 06/09/2012 MCC Capital Engineering & Research MCC (Xiangtan) Heavy industrial Joint liability Incorporation Limited Equipment Co., Ltd guarantee 0.00 25/11/2011 25/11/2012 MCC Yichang Heavy Industry Joint liability CCTEC Machinery Co., Ltd guarantee 1,110.00 07/03/2011 28/08/2012 Hebei Steel Group Luan County Joint liability China 22 MCC Group Co., Ltd Sijiaying Iron Ore Co., Ltd guarantee 6,000.00 10/10/2007 30/08/2014 Xi‘an Triangle Aviation Technology Joint liability China 22 MCC Group Co., Ltd Co., Ltd guarantee 12,500.00 09/09/2008 31/12/2014 Joint liability MCC Paper Yinhe Co., Ltd Shandong Xunli Extrea Truck Co., Ltd guarantee 500.00 25/04/2011 24/04/2012 Joint liability MCC Meili Paper Industry Co.,Ltd Xibei Bearing Co. guarantee 3,300.00 20/01/2005 28/11/2005 Wuzhong Instrumentation Group Co., Joint liability MCC Paper Group Co., Ltd Ltd guarantee 1,800.00 26/09/2003 25/08/2004 Joint liability MCC Meili Paper Industry Co.,Ltd Shaanxi Topsun Medical Co., Ltd guarantee 1,600.00 21/09/2006 20/03/2007 Joint liability MCC Paper Yinhe Co., Ltd Shandong Xunli Extrea Truck Co., Ltd guarantee 2,000.00 24/05/2011 23/05/2012 Joint liability MCC Paper Yinhe Co., Ltd Shandong Xunli Extrea Truck Co., Ltd guarantee 1,000.00 24/05/2011 23/05/2012 Total 75,599.78 107

13 Contingencies (Continued)

(2) Pending lawsuits

As of 31 December 2011, as a plaintiff, the Group is subject to pending lawsuits claims of RMB 90,445.52 ten thousand ; as a defendant, the Group is subject to pending lawsuits of RMB 104,873.44 ten thousand.

As a defendant, the above pending subject matter includes a count of a lawsuit worth of $80 million Australian Dollar, and this sum of money has been fully included in other payables. The Group does not think that extra estimated debts exits. This litigation matter only involves payment matters.

The Group has been named in a number of lawsuits and other legal proceedings arising in the ordinary course of business. Provision as set out in Note 8(38) have been made for the probable losses to the Group on those claims when management can reasonably estimate the outcome of the lawsuits based on management‘s judgments and the legal advice. No provision has been made for pending lawsuits if the outcome of the lawsuits cannot be reasonably estimated or the management believes the outflow of resources is not probable.

14 Non-adjusting events post balance sheet date

As to the date of the approval of the report,, Hengtong Cold Rolling Technology Co., LTD, a subsidiary of the China Metallurgical Group, has entered the asset transferring procedures according to relevant agreements. 15 Related parties and related party transactions

(1) Parent and ultimate party

General information of the controlling (a) party

Registration Place: Business Nature: Engineering contracting, resource development, equipment manufacturing, China Metallurgical Science and Beijing real estate development, paper making Industry Group Co., LTD and others.

The ultimate party is the State-owned Assets Supervision and Administration Commission of the State Council.

(b) The percentage of equity interests in the Company held by the controlling party

31 December, Increase in the Decrease in the 2010 current year (%) current year (%) 31 December,2011

Percentage of interests held 100.00 0.00 0.00 100.00 Percentage of voting rights 100.00 0.00 0.00 100.00

108

109

(2) General information of subsidiaries

Please refer to Note 18

(3) Joint venture and associates

Please refer to Note 8 (14) : Long-term equity investment

(4) related party transaction

(a) Pricing policies

The Group‘s pricing on products sold to related parties and raw materials purchased from related parties is based on market price

(b) Sales of goods

2011 2010

Tianjin SERI Machinery Equipment Co., Ltd 9,535.53 1,223.44 Shanghai MCC Shinton Investment Co., Ltd. 0.00 11,927.94 Xiangtan MCC Heavy Industry Equipment Co., LTD 9.10 0.00 9,544.63 13,151.38

Tianjin SERI Machinery Equipment Co., Ltd. 141.88 458.48 Shanghai Baoye Tongji Construction Robot Co., Ltd. 3,106.26 4,325.62 MCC (Xiangtan) Heavy Industrial Equipment Co., Ltd. 879.37 390.25 Huludao Non-ferrous Metal Trade Co., LTD 0.00 222.61 Wuhan Zhonghe Engineering Quality Inspection Co., Ltd. 41.17 40.64 4168.68 5,437.60

110

CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 15 Related parties and related party transactions (Continued) (4) related party transaction(Continued)

(d) Tender guarantee

2011 2010

MCC Engineering Technology Co., LTD 0.00 10,000.00 MCC Continuous Casting Technology Engineering Co., LTD 1,110.00 0.00 1,110.00 10,000.00

(e) Interest income from providing loans

2011 2010

MCC (Xiangtan) Heavy Industrial Equipment Co., Ltd. 496.25 213.92 Wuhan Industry Vocational &Technical College 0.00 122.41 Tianjin SERI Machinery Equipment Co., Ltd. 242.10 885.35 Zhuhai Ka Du Hai Jun Real Estate Development Co., Ltd 9,270.09 9,279.84 10,008.44 10,501.52

111

CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 15 Related parties and related party transactions (Continued) (5) Receivables from and payables to related parties (a) accounts receivable 31 December 2011 31 December 2010 book balance bad debt book balance bad debt MCC (Xiangtan) Heavy Industrial Equipment Co., Ltd 0.00 0.00 10.37 0.00 Tianjin SERI Machinery Equipment Co., Ltd. 1,419.44 0.00 319.98 0.00 MCC (Beijing) Meili Paper-making Co., Ltd 4,148.71 124.46 3,495.23 141.15 5,568.15 124.46 3,825.58 141.15 . (b) Other receivables 31 December 2011 31 December 2010 book balance bad debt book balance bad debt Zhuhai Kadu Haijun Real Estate Development Co., Ltd 103,016.19 0.00 93,712.54 0.00 MCC (Xiangtan) Heavy Industrial Equipment Co., Ltd 8,287.50 0.00 8,289.40 0.00 Wuhan Industry Vocational &Technical College 4,006.79 400.68 4,756.20 277.15 Tianjin seric machine equipment Co., LTD 0.00 0.00 787.16 0.00 Wuhan Zhonghe Engineering Quality Inspection Co., Ltd 275.53 27.55 296.73 29.66 115,586.01 428.23 107,842.03 306.81

(c) Advances to suppliers 31 December 2011 31 December 2010 Huludao Nonferrous Metals Trading Co., Ltd. 356.02 353.53 Tianjin SERI Machinery Equipment Co., Ltd. 189.60 10.20 Wuhan Industry Vocational &Technical College 0.00 78.17 Wuhan Zhonghe Engineering Quality Inspection Co., Ltd 0.00 24.96 MCC (Xiangtan) Heavy Industrial Equipment Co., Ltd 0.00 213.25 545.62 680.11

(d) Dividend receivable 31 December 2011 31 December 2010 Tianjin SERI Machinery Equipment Co., Ltd. 1,600.00 1,600.00 Beijing new century hotel Co., LTD 0.00 83.26 Wuhan Zhonghe Engineering Quality Inspection Co., Ltd 0.00 13.60 1,600.00 1,696.86

112

CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 15 Related parties and related party transactions (Continued) (5) Receivables from and payables to related parties

(f) Accounts payable

31 December 2011 31 December 2010

Shanghai Bao Ye Commercial Concrete Co., Ltd. 0.00 22.54 Shanghai Tongji Bao Ye construction robot Co., LTD 99.00 215.33 Tianjin SERI Machinery Equipment Co., Ltd. 1,906.12 1,085.57 Wuhan Zhonghe Engineering Quality Inspection Co., Ltd 52.16 26.66 MCC (Xiangtan) Heavy Industrial Equipment Co., Ltd 266.98 353.44 2,324.26 1,703.54

(g) Other payables

31 December 2011 31 December 2010

Huludao Nonferrous Metals Trading Co., Ltd. 500.00 500.00 Wuhan Zhonghe Engineering Quality Inspection Co., Ltd 5.00 0.00 505.00 500.00

Other payable are unsecured, non-interest bearing and repayable no fixed insults.

(h) Account collected in advance

1 December 2011 1 December 2010

MCC (Xiangtan) Heavy Industrial Equipment Co., Ltd 7.20 7.20

113

CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 16 Business combination (1) Business combination involving entities not under common control (a) Chengde City Architecture Design Co., LTD On May 20 2011, the company acquired 100% shares of Chengde City Architecture Design Co., LTD from Zhou Shaowen and 7 other original shareholders. The acquisition date is On May 20 2011, on which the Group effectively obtains the rights to control of Chengde City Architecture Design Co., LTD. Details of net assets acquired and goodwill recognised from this acquisition are as follows: Cost of combination Cash paid 3,710.00 Fair value of non-cash assets transferred 0.00 Fair value of liabilities incurred or assumed 0.00 Total cost of combination 3,710.00 Less: Fair value of the identifiable net assets acquired 363.98 Goodwill 3,346.02

The assets, liabilities of Chengde City Architecture Design Co., LTD at the acquisition date, and the cash flows relating to the acquisition are as follows: Fair value Carrying amount Date of Date of acquisition acquisition 31 December 2010

Current assets 1,355.44 1,357.18 2,100.21 Non-current assets 144.78 91.20 121.90 Current liabilities 1,136.24 1,136.24 1,960.75 Non–current liabilities 0.00 0.00 0.00 Net assets 363.98 312.14 261.36 Less: Minority interest 0.00 0.00 0.00 Net assets acquired 363.98 312.14 261.36

Consideration settled in cash 3,710.00 Less: cash and cash equivalents in the subsidiary acquired 1.61 Net cash outflow on acquisition of the subsidiary 3,708.39

The revenue, net profit and the cash flows of Chengde City Architecture Design Co., LTD for the period from acquisition date to 31 December 2011 are as follows:

Revenue 1,134.39 Net profite 430.13 Cash flows from operating activities 29.54 Net cash flows 17.00

The Group used valuation technique to determine the fair value of the assets and liabilities of Chengde City Architecture Design Co., LTD on the acquisition date.

114

CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 16 Business combination (Continued) (1) (1) Business combination involving entities not under common control (Continued) (b) Shanghai Xuanxiang Real Estate Co., LTD On 1 January 2011, the company acquired 100% shares of Shanghai Xuanxiang Real Estate Co., LTD from Shanghai Xuanhe investment Co., LTD. The acquisition date is On 1 January 2011, on which the Group effectively obtains the rights to control of Shanghai Xuanxiang Real Estate Co., LTD. Details of net assets acquired and goodwill recognised from this acquisition are as follows:

Cost of combination Cash paid 1,000.00 Fair value of non-cash assets transferred 0.00 Fair value of liabilities incurred or assumed 0.00 Total cost of combination 1,000.00 Less: Fair value of the identifiable net assets acquired 1,000.00 Goodwill 0.00

The assets, liabilities of Shanghai Xuanxiang Real Estate Co., LTD at the acquisition date, and the cash flows relating to the acquisition are as follows: Fair value Carrying amount Date of Date of 1 December 2010 acquisition acquisition Current assets 8,841.50 8,841.50 8,841.50 Non-current assets 74.90 74.90 74.90 Current liabilities 7,916.40 7,916.40 7,916.40 Non –current liabilities 0.00 0.00 0.00 Net assets 1,000.00 1,000.00 1,000.00 Less: Minority interest 0.00 0.00 0.00 Net assets Acquired 1,000.00 1,000.00 1,000.00

Consideration settled in cash 1,000.00 Less: cash and cash equivalents in the subsidiary acquired 424.71 Net cash outflow on acquisition of the subsidiary 575.29

The revenue, net profit and the cash flows of Shanghai Xuanxiang Real Estate Co., LTD for the period from acquisition date to 31 December 2011 are as follows:：

Revenue 8,685.68 Net profit 679.19 Cash flows from operating activities -923.37 Net cash flows 1.73

The Group used valuation technique to determine the fair value of assets and liabilities of Shanghai Xuanxiang Real Estate Co., LTD on the acquisition date.

115

CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 16 Business combination (Continued) (1) (2) Business combination involving entities not under common control (Continued) (c) Wuhan iron and steel group design institute Co., LTD On 31 December 2011, the company acquired 100% shares of Wuhan Iron and Steel group Design Institute Co., LTD from Wuhan Iron and Steel Engineering Technology Group. The acquisition date is on 31 December 2011, on which the Group effectively obtains the rights to control of Wuhan iron and steel group design institute Co., LTD. Details of net assets acquired and goodwill recognised from this acquisition are as follows:

Cost of combination Cash paid 0.00 Fair value of non-cash assets transferred 11,661.68 Fair value of liabilities incurred or assumed 0.00 Total cost of combination 11,661.68 Less: Fair value of the identifiable net assets acquired 11,661.68 Goodwill 0.00

The assets, liabilities of Wuhan Iron and Steel group Design Institute Co., LTD at the acquisition date, and the cash flows relating to the acquisition are as follows:

Fair value Carrying amount Date of Date of 1 December 2011 acquisition acquisition Current assets 34,445.89 34,445.89 36,523.23 Non-current assets 6,546.78 997.56 911.29 Current liabilities 29,330.99 29,331.00 31,948.34 Non –current liabilities 0.00 0.00 0.00 Net assets 11,661.68 6,112.45 5,486.18 Less: Minority interest 0.00 0.00 0.00 Net assets Acquired 11,661.68 6,112.45 5,486.18

Consideration settled in cash 0.00 Less: cash and cash equivalents in the subsidiary acquired 4,257.06 Net cash outflow on acquisition of the subsidiary -4,257.06

The revenue, net profit and the cash flows of Wuhan Iron and Steel group Design Institute Co., LTD for the period from acquisition date to 31 December 2011 are as follows:

Revenue 0.00 Net profit 0.00 Cash flows from operating activities 0.00 Net cash flows 0.00

The Group used t valuation technique to determine the fair value of assets and liabilities of Wuhan Iron and Steel group Design Institute Co., LTD on the acquisition date.

116

CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 16 Business combination (Continued) (1) (3) Business combination involving entities not under common control (Continued) (d) MCC Meili logistics Co., LTD On 1 January 2011, the company acquired 100% shares of MCC Meili logistics Co., LTD from the original shareholder Yu Xuezhong. The acquisition date is on 1 January 2011, on which the company effectively obtains the rights to control of MCC Meili logistics Co., LTD. Details of net assets acquired and goodwill recognised from this acquisition are as follows: Cost of combination Cash paid 500.00 Fair value of non-cash assets transferred 0.00 Fair value of liabilities incurred or assumed 0.00 Total cost of combination 500.00 Less: Fair value of the identifiable net assets acquired 379.97 Goodwill 120.03

The assets, liabilities of MCC Meili logistics Co., LTD at the acquisition date, and the cash flows relating to the acquisition are as follows:

Fair value Carrying amount Date of Date of acquisition acquisition 2010 12 31 Current assets 1,682.41 1,682.41 1,682.41 Non-current assets 162.71 162.71 162.71 Current liabilities 1,165.15 1,165.15 1,165.15 Non –current liabilities 300.00 300.00 300.00 Net assets 379.97 379.97 379.97 Less: Minority interest 0.00 0.00 0.00 Net assets Acquired 379.97 379.97 379.97

Consideration settled in cash 500.00 Less: cash and cash equivalents in the subsidiary acquired 519.49 Net cash outflow on acquisition of the subsidiary -19.49

The revenue, net profit and the cash flows of MCC Meili logistics Co., LTD for the period from acquisition date to 31 December 2011 are as follows:

Revenue 5,467.32 Net profit 124.71 Cash flows from operating activities 252.71 Net cash flows -351.18

117

CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 17 Exchange of non-monetary assets and debt restructuring (1) Exchange of non-monetary assets Swapped-out Swapped-out Swapped-in Fair Swapped-out asset carrying value of carrying value of Swapped-in value of the category the asset the asset asset category assets Fixed assets 5,572.06 5,980.32 Inventory 119,969.22 142,642.77 Other receivables 13,145.33 13,145.33 Cash 56.00 56.00 Intangible assets 161,824.42 Total 138,742.61 161,824.42 161,824.42

On December 27 2011, (MCC)Yinhe Paper-making Co., LTD, the subsidiary of the company signed an asset exchange agreement for assets displacement with Linqing City Water Engineering Co., LTD., involving the fair value of 161824.42 ten thousand yuan of the assets swapped out, including: 142642.77 ten thousand yuan of inventory, 5980.32 ten thousand yuan of fixed assets, 13145.33 ten thousand yuan of other receivables, and 560000 yuan cash.

(2) Debt restructuring (a) Debtor project Debt Debt is converted conti as a results of Debt restructuring restructurin into capital as a ngent Projects g result of equity capitalisation of debts methods capital (Paidup capital) charg gain/(loss) additional amount e Nanjing Fine Art Machinery modification of other terms of the Manufacturing Co., LTD, debt to pay off the debt 3.80 Xing Chengshi Chemical Glass modification of other terms of the Factory debt to pay off the debt 0.10 MCC Shangxi liquidation of debt by asset 3.60 Nanyang Decoration Engineering Company liquidation of debt by asset 2.40 Wang Yuanshun,Zhang Jiakou Binghe Building Materials Agency liquidation of debt by asset 2.80 Shanhaiguan works equipment factory liquidation of debt by asset 1.60 Shang Haiguan Works Equipment modification of other terms of the Factory, debt to pay off the debt 7.10 Wuxi Lianda Electric Appliance modification of other terms of the Co., LTD, debt to pay off the debt 0.90 Wu Han Qi Yier Electric Co., modification of other terms of the LTD. debt to pay off the debt 1.20 Tangshan North Construction modification of other terms of the Engineering Co., LTD debt to pay off the debt 0.50 Changzhou JinYang nticorrosive Engineering Company liquidation of debt by asset 0.20 Fujian Changhong Building Engineering Co., LTD liquidation of debt by asset 24.10 Yang Shuwang, Jian‘an Company liquidation of debt by asset 23.20 Dong Yang Sandui, Hengyang liquidation of debt by asset 4.40 Jiang Han Building Engineering modification of other terms of the Machinery Equipment Factory debt to pay off the debt 1.60 Shanghai Yutong Building modification of other terms of the Engineering Co., LTD debt to pay off the debt 14.20 Chongqing Yicheng Building modification of other terms of the Engineering Co., LTD debt to pay off the debt 8.00 Chengdu Chuang‘er Construction modification of other terms of the Labor Services Co., LTD debt to pay off the debt 0.90 Shanghai PuChao Construction and modification of other terms of the Anstallation Co., LTD debt to pay off the debt 13.70 Jiangsu Tianmu Construction modification of other terms of the Group Co., LTD debt to pay off the debt 1.10

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CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 17 Exchange of non-monetary assets and debt restructuring (Continued) (2) Debt restructuring (Continued) (a) Debtor project(Continued) Increase in Possib Debt restructuring Debt share as a le exp project methods restructuri results of enditu ng capitalisation res of debts modification of other terms of the Huangcheng construction Co., LTD, Nantong branch 9.90 debt to pay off the debt modification of other terms of the Shanghai metal construction Co., LTD 8.50 debt to pay off the debt modification of other terms of the Feng du Lingxing Mechants' 13.30 debt to pay off the debt modification of other terms of the Anshan HuaShun industrial installation engineering Co., LTD -4.10 debt to pay off the debt Sichuan Liangshan geological survey andconstruction company liquidation of debt by asset 0.60 Yang Guoren liquidation of debt by asset 2.70 Heibei Kaili mechanical and electrical equipment Co., LTD liquidation of debt by asset -5.50 Han Xudong construction team liquidation of debt by asset 3.50 Tianjin Xing Qi Road Company liquidation of debt by asset 1.00 Tianjin Anshun Building installation Co., LTD(Ma Fengqi) liquidation of debt by asset 3.10 Tianjin Xing Qi Road Company liquidation of debt by asset 1.60 Hefei construction group company liquidation of debt by asset 4.80 Tianjin Hansheng Hengye Trading Co., LTD liquidation of debt by asset 1.60 Shanghai Shengrun Building installation Co., LTD liquidation of debt by asset 1.10 Shanghai Wangjing Mechanical and electrical equipment liquidation of debt by asset 1.40 installation engineering Co., LTD Jiangdu Petrochemical construction Co., LTD liquidation of debt by asset 0.50 Jiangsu Suzhong Building installation Co., LTD liquidation of debt by asset 0.30 Dan Houjian liquidation of debt by asset 5.10 Tianjin Dongli Hardware And Building Materials liquidation of debt by asset 2.40 Zhao Shiyong liquidation of debt by asset 0.20 Wang Zhenyong construction team liquidation of debt by asset 2.40 An yang Chenguang Construction Co., LTD liquidation of debt by asset 4.80 Zhang Jiakou Xuanhua Tangfa Lifting transportation Co., LTD liquidation of debt by asset 8.80 Ren Wanqiao liquidation of debt by asset 20.70 Henan Anticorrosion insulation development Co., LTD liquidation of debt by asset 2.70 Shandong Shengtai Construction Co., LTD liquidation of debt by asset 7.50 Miao Weiqiang liquidation of debt by asset 5.80 Zhang Jiakou Xuanhua Tangfa Lifting transportation Co., LTD liquidation of debt by asset 1.30 Sun Delin liquidation of debt by asset 1.00 Liu Yongbin liquidation of debt by asset 1.90 Hou Zhen liquidation of debt by asset 6.40 Li Fulu liquidation of debt by asset 2.00 FanShiming liquidation of debt by asset 6.90 Henan Anticorrosion insulation development Co., LTD liquidation of debt by asset 2.90 Lai WU heng Guang Construction Co., LTD liquidation of debt by asset 20.20 Lai WU heng Guang Construction Co., LTD liquidation of debt by asset 41.20 Puyang Fuxin Anticorrosive Co., LTD liquidation of debt by asset 2.80 Haer Bin Concrete products Co., LTD liquidation of debt by asset 35.60 Li Jiaming liquidation of debt by asset 1.90

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CHINA METALLURGICAL GROUP CORPORATION Notes to the Consolidated Financial Statements For the year ended 31 December 2011 (All amounts in RMB Ten Thousand Yuan unless otherwise stated) [English translation for reference only] 17 Exchange of non-monetary assets and debt restructuring (Continued) (2) Debt restructuring (Continued) (a) Debtor project(Continued)

Debt Debt is converted as a results of restructuri into capital as a contin Projects Debt restructuring ng result of equity gent capitalisation of debts methods capital (Paidup capital) char gain/(loss) additional amount ge Tianjin Fuka Construction group Co., LTD liquidation of debt 6.20 Tianjin Sanshun Building Installation Co., LTD liquidation of debt 0.30 MCC Shangxi liquidation of debt 2.20 Shanghai Bao Zhiqi Gas Co., LTD liquidation of debt 218.40 Henan Fu Xin Anticorrosion Installation Co., LTD liquidation of debt 0.40 liquidation of debt Linzhou Construction Group Corporation Immediate liquidation of debt 0.60 engineering department Hubei Long Tai Landscape Engineering Co., LTD liquidation of debt 5.70 Qing Huangdao Meihuan Landscape Engineering Co., liquidation of debt 7.20 LTD modification of other term of Material money the debt to pay off the debt 92.30 Ningxia Tian Yuan modification modification of other term of of other terms Chemical 7.80 Industry &Trade Co., LTD the debt to pay off the debt Henan Zhongyuan Immediate modification of other term of engineering department the debt to pay off the debt 5.00 690.30

(b) Debtor project Debt is converted conti Debt into capital as a ngen Projects Debt restructuring methods restructuri result of equity t ng capital (Paidup capital) char gain/(loss) additional amount ge modification of other term of the debt to pay off the -9.50 Rizhao Steel Co., LTD. debt Huaifang Steel Group Company liquidation of debt by asset -3.60 modification of other term of Fengdu Lingxing Keshang the debt to pay off -23.00 modification of other term Shandong Rizhao Steel Co., of the debt to pay off the LTD. debt -77.50

LongGang Group Baoji Steel liquidation of debt by asset -34.30 Co., LTD liquidation of debt Shanghai Baozhi Qicheng Gas by asset Co., LTD -40.00

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(1) Details of subsidiaries included in the consolidation scope as at 31 December 2011 are as follows: No. Company Equity Interest Voting Registered Registered Investment Type of audit (%) right %) character location Capital amount Tier Type of company opinion Note

Other Beijing Dongxing Technology professional technology Domestic non-financial Unqualified 1 Development 100.00 100.00 service Beijing 90.08 90.08 2 subsidiary audit Investment Machine made paper and Domestic non-financial Unqualified 2 MCC Paper Group Co., Ltd 100.00 100.00 paperboard Beijing 167,231.00 271,340.03 2 subsidiary audit Other Beijing MCC Construction taxi Taxi passenger Domestic non-financial Unqualified 3 rental Co., Ltd. 100.00 100.00 transportation Beijing 937.74 937.74 2 subsidiary audit Investment With emphasis Metallurgical Corporation of Construction on matters and Domestic non-financial Unqualified 4 China Ltd. 64.18 64.18 installation Beijing 1,911,000.00 1,940,042.96 2 subsidiary audit Investment MCC Hengtong Cold Rolling Steel rolling Domestic non-financial Unqualified 5 Technology Co., Ltd. 100.00 100.00 processing Tangshan 816,800.00 764,000.00 2 subsidiary audit Investment MCC Shanghai employees‘ General Domestic non-financial Unqualified 6 Hospital 100.00 100.00 hospital Shanghai 4,588.00 4,584.23 2 subsidiary audit Investment

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Current year Current year re No. Company Name 2010 12 31 additions duction 2011 12 31

Beijing Dongxing Metallurgical new 1 technology development corporation 90.08 0.00 0.00 90.08 2 MCC paper group Co., Ltd. 162,200.00 5,031.00 0.00 167,231.00 Beijing MCC construction taxi 3 rental Co., Ltd 937.74 0.00 0.00 937.74 Metallurgical corporation of China 4 Ltd. 1,911,000.00 0.00 0.00 1,911,000.00 MCC Hengtong Cold Rolling 5 Technology Co., Ltd 160,000.00 656,800.00 0.00 816,800.00 6 MCC Shanghai employees‘ hospital 4,584.23 3.77 0.00 4,588.00

(3) Equity interest of subsidiaries held by the Company and their changes are as follows:

31 December 31 December additions proporti No. Company Name amount proportion r reduction amount on

Beijing Dongxing Metallurgical new technology development 1、 corporation 90.08 100.00 0.00 0.00 90.08 100.00 2、 MCC paper group Co., Ltd. 271,340.03 100.00 0.00 0.00 271,340.03 100.00 Beijing MCC construction 3、 taxi rental Co., 937.74 100.00 0.00 0.00 937.74 100.00 Metallurgical corporation of 4、 China Ltd. 1,940,026.96 64.18 16.00 0.00 1,940,042.96 64.18 MCC Hengtong Cold Rolling Technology Co., 5、 Ltd 0.00 100.00 56,200.55 0.00 56,200.55 100.00 MCC Shanghai employees‘ 6、 hospital 4,584.23 100.00 0.00 0.00 4,584.23 100.00

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On December 16 2011, MCC Meili Paper Industry Co.,Ltd., Ltd, the 3rd level subsidiary of the Group, held The thirteenth meeting of the fifth board of directors, and adopted the Asset Exchange Agreement signed with Zhongwei Zhong Xing Industrial Co., LTD. ,intending to replace current assets with an assessed value of 86,844.95 ten thousand yuan, and fixed assets with an assessed value of 14,108.58 ten thousand yuan and debts with an assessed value of 66,600.00 ten thousand yuan with ―the mining right of Liang Shuiyuan coal mine area in the eastern part of exploration area in Zhongwei city‖, which has an assessed value of 34,347.75 ten thousand yuan. By the date of the audition of the report, the agreement of the asset replacement has not been approved by the stockholders' meeting of MCC Meili Paper Industry Co.,Ltd.

20 Approval of consolidated financial statements

The above consolidated financial statements for the year ended 2011 was prepared according to the accounting standards for business enterprises and relevant provisions of and supplementary provisions and was approved by the Board of Directors of the Company.

Company Name : China Metallurgical Group Corporation

Legal representative: Wang Person in charge of accounting Head of accounting department: Weimin function: Li Shiyu Chen Wenlong

Date: 19 April 2012 Date: 19 April 2012 Date: 19 April 2012

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