Very Substantial Disposal and Connected Transaction
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THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to any aspect of this circular, you should consult a licensed securities dealer or registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in Magnesium Resources Corporation of China Limited (the “Company”), you should at once hand this circular and the accompanying form of proxy to the purchaser or the licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. * (Incorporated in Bermuda with limited liability) (Stock Code: 723) VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION INVOLVING THE PROPOSED DISPOSAL OF A MAGNESITE MINING SUBSIDIARY AND OFF-MARKET REPURCHASE OF SHARES PROPOSED CHANGE OF COMPANY NAME AND PROPOSED CAPITAL REORGANISATION Financial adviser to Magnesium Resources Corporation of China Limited Independent Financial Adviser to the Independent Board Committee and the Disinterested Shareholders A letter from the Independent Board Committee giving its recommendations to the Disinterested Shareholders on the Agreement is set out on page 30 of this circular. A letter from VC Capital, the independent financial adviser, containing its advice to the Independent Board Committee and the Disinterested Shareholders is set out on pages 31 to 39 of this circular. A notice convening a special general meeting of Magnesium Resources Corporation of China Limited to be held at Boardroom 5, G/F., Renaissance Harbour View Hotel, No. 1 Harbour Road, Wanchai, Hong Kong on Friday, 19 December 2008 at 10:30 a.m. is set out on pages SGM-1 to SGM-3 of this circular. A form of proxy for use at the special general meeting is also enclosed. Such form of proxy is also published on the websites of The Stock Exchange of Hong Kong Limited (www.hkex.com.hk) and the Company (www.mrccltd.com). Whether or not you are able to attend the special general meeting, please complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s Share Registrar in Hong Kong, Tricor Tengis Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the special general meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude shareholders from attending and voting in person at the meeting if they so wish. * For identification purpose only 26 November 2008 CONTENTS Page Definitions . 1 Letter from the Board . 6 Letter from the Independent Board Committee . 30 Letter from VC Capital . 31 Appendix I – Financial information of the Group . I-1 Appendix II – Unaudited pro forma financial information of the Remaining Group . II-1 Appendix III – Valuation report . III-1 Appendix IV – Reports on forecast underlying the valuation . IV-1 Appendix V – Statutory and general information . V-1 Notice of SGM . SGM-1 DEFINITIONS In this circular, unless the context otherwise requires, the following expressions shall have the following respective meaning: “2007 Agreement” the agreement dated 28 November 2007 entered into between the Company, PHL and the Guarantor in relation to the Subsidiary “acting in concert” has the meaning ascribed to it under the Takeovers Code “Agreement” the conditional agreement dated 15 August 2008 entered into between the Company, PHL and the Guarantor in relation to the Disposal “Announcement” the announcement of the Company dated 2 September 2008 in relation to the Disposal “associate(s)” has the meaning ascribed to it under the Listing Rules “Board” the board of Directors “Capital Reduction” the proposed reduction of the par value of each issued Existing Share from HK$0.10 to HK$0.01 by cancelling the paid-up capital to the extent of HK$0.09 on each Existing Share “Capital Reorganisation” the proposed share capital reorganisation as more fully set out under the section headed “Proposed Capital Reorganisation” in this circular “Company” Magnesium Resources Corporation of China Limited, a company incorporated in Bermuda with limited liability, the issued Shares of which are listed on the Stock Exchange “Companies Act” the Companies Act 1981 (as amended) of Bermuda “Completion” completion of the Agreement in accordance with the terms thereof “Consideration” the total consideration of HK$1,624,464,456.5 for the Sale Shares and the Sale Loan under the Agreement “Convertible Note” the Convertible Note issued by the Company in favour of PHL in an aggregate principal amount of HK$1,092 million but to be surrendered by PHL to the Company pursuant to the Agreement for cancellation and discharge at Completion “Diminution of Authorised the proposed diminution of authorised share capital of the Share Capital” Company to HK$100,000,000 divided into 10,000,000,000 New Shares of par value HK$0.01 each “Director(s)” the director(s) of the Company 1 DEFINITIONS “Disinterested Shareholders” Shareholders other than PHL, the Guarantor, their respective associates and parties acting in concert with them “Disposal” the proposed disposal of the Sale Shares and the assignment of the Sale Loan by the Company to PHL pursuant to the Agreement “Executive” the Executive Director of the Corporate Finance Division of the Securities and Futures Commission or any of his delegates “Existing Shares” ordinary shares of HK$0.10 each in the existing issued share capital of the Company prior to the Capital Reduction “Group” the Company and its subsidiaries “Guarantor” Mr. Yam Tak Cheung, being the guarantor to the Purchaser for the purpose of the Agreement and the sole beneficial owner of the Purchaser, who is beneficially interested in approximately 28.1% of the issued Shares as at the Latest Practicable Date “HK$” Hong Kong dollars, the lawful currency of Hong Kong “HK GAAP” the generally accepted accounting principles in Hong Kong “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Independent Board a committee of the Board comprising all the independent Committee” non-executive Directors, namely Mr. William Lo Chi Ho, Mr. Peleus Chu Kin Wang, and Ms. Lau Wa Chun established for the purpose of advising and giving recommendations to the Disinterested Shareholders on the Agreement “Independent Third Party(ies)” person(s) or company(s) who/which is/are not connected with the directors, chief executive or substantial shareholders (as defined under the Listing Rules) of the Company and its subsidiaries, or any of their respective associates “Last Full Trading Day” 14 August 2008, being the last full trading day prior to suspension of trading in the Shares on the Stock Exchange from 2:30 p.m. on 15 August 2008 “Latest Practicable Date” 21 November 2008, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange 2 DEFINITIONS “Magnesite Mine” the mine area known as “梨樹溝菱鎂礦 (Liaoning Magnestie Mine#) containing Magnesite resources located approximately 18km southwest of Haicheng City of the Liaoning Province and approximately 120 km south of Shenyang, the capital city of Liaoning Province of the PRC, covering a mining area of approximately 0.8643 km2 “Mr. Cheng” Mr. Cheng Tun Nei, a former Substantial Shareholder and a former Director of the Company “New Share(s)” ordinary share(s) of HK$0.01 each in the share capital of the Company immediately after the Capital Reorganisation becoming effective “PHL” Pure Hope Development Limited, a company incorporated in the British Virgin Islands with limited liability which is wholly- owned by the Guarantor “PRC” the People’s Republic of China which, for the purposes of this circular, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan “PRC Company” 海城市東鑫實業有限公司 (Haicheng Dongxin Industry Limited#), a company established under the laws of the PRC with limited liability which is directly owned as to 80% by the Subsidiary and as to 20% by the PRC Partner “PRC Partner” 海城市八里鎮東三道村民委員會 (Haicheng Bali County Dongsandao Villagers Committee#) which is a villagers autonomous organisation (村民自治組織) established in Haicheng City, the Liaoning Province of the PRC “Promissory Note” the promissory note issued by the Company in favour of PHL with principal amount of HK$320 million but to be surrendered by PHL to the Company for cancellation and discharge at Completion pursuant to the Agreement “Relevant Period” the period from 2 March 2008, being the date falling on the six months before the date of the Announcement, up to and including the Latest Practicable Date “Remaining Group” the Group excluding the Sale Group “Repurchase Code” the Hong Kong Code on Share Repurchases “Repurchase Shares” the 800,000,000 Shares beneficially held by PHL and to be transferred to the Company at Completion pursuant to the Agreement for cancellation “RMB” Renminbi, the lawful currency of the PRC 3 DEFINITIONS “Sale Group”