（ Incorporated in the Cayman Islands with limited liability） Stock Code: 1370 ANNUAL REPORT 2013 CONTENTS Corporate Information 2 Highlights of Financial Results 4 Chairman’s Statement 6 Management Discussion and Analysis 10 Report of the Directors 25 Corporate Governance Report 33 Biographies of Directors and Senior Management 47 Independent Auditor’s Report 54 Consolidated Statement of Comprehensive Income 56 Consolidated Balance Sheet 57 Balance Sheet 59 Consolidated Statement of Changes in Equity 60 Consolidated Cash Flow Statement 61 Notes to Consolidated Financial Statements 62 Financial Summary 106 Definitions 107 Corporate Information Hengshi Mining Investments Limited (the “Company”) was initially incorporated in the British Virgin Islands under the laws of the BVI on 14 January 2011 and redomiciled to the Cayman Islands on 23 May 2013. The Company was listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”) on 28 November 2013. As at 31 December 2013, the Company has issued 1,507,843,000 shares in total, of which 382,843,000 shares are traded on the Main Board in Hong Kong, accounting for 25.4% of the total number of shares. The Company and its subsidiaries (together the “Group”) are principally engaged in the exploration, mining, processing and trading of iron ore products and major products include iron ores, preliminary concentrates and iron ore concentrates. The Group owns and operates four mines in Hebei Province, which has the largest steel production and iron ore consumption volumes in China. As at 31 December 2013, the Group had approximately 395.8 Mt of indicated resources, approximately 322.4 Mt of probable reserves and approximately 223.7 Mt of inferred resources of iron ores in aggregate. Leveraging on the experienced and solid management team, leading production cost in the market, prime location and the local consolidated principal status, the Group will bring sustainable and fruitful returns to the shareholders. DIRECTORS AUTHORIZED REPRESENTATIVES EXECUTIVE DIRECTORS Mr. Li Yanjun Mr. Li Yanjun (Chairman) Ms. Kwong Yin Ping, Yvonne Mr. Leung Hongying Li Ziwei Mr. Xia Guoan (CEO) JOINT COMPANY SECRETARIES Mr. Sun Jianhua (CFO) Mr. Meng Ziheng Mr. Huang Kai Ms. Kwong Yin Ping, Yvonne Mr. Tu Quanping AUDITORS INDEPENDENT NON-EXECUTIVE DIRECTORS KPMG Mr. Ge Xinjian Certified Public Accountants Mr. Meng Likun 8th Floor, Prince’s Building Mr. Kong Chi Mo 10 Chater Road Central AUDIT COMMITTEE Hong Kong Mr. Ge Xinjian (Chairman) Mr. Meng Likun HONG KONG LEGAL ADVISOR Mr. Kong Chi Mo Clifford Chance 28th Floor, Jardine House NOMINATION COMMITTEE One Connaught Place Mr. Li Yanjun (Chairman) Central Mr. Meng Likun Hong Kong Mr. Kong Chi Mo COMPLIANCE ADVISOR REMUNERATION COMMITTEE Somerley Capital Limited Mr. Meng Likun (Chairman) 20/F China Building Mr. Leung Hongying Li Ziwei 29 Queen’s Road Central Mr. Ge Xinjian Hong Kong 2 HENGSHI MINING INVESTMENTS LIMITED Annual Report 2013 Corporate Information HEAD OFFICE IN THE PRC STOCK CODE No. 91 Guangping Avenue 01370 Laiyuan County Baoding City 074300 INVESTORS’ ENQUIRY Hebei Province Website: www.hengshimining.com PRC E-Mail: [email protected] PRINCIPAL PLACE OF BUSINESS IN REGISTERED OFFICE HONG KONG P.O. Box 309 18/F, Tesbury Centre Ugland House 28 Queen’s Road East Grand Cayman Wanchai KY1-1104 Hong Kong Cayman Islands PRINCIPAL SHARE REGISTRAR IN THE SHARE INFORMATION CAYMAN ISLANDS Board lot size: 1,000 Maples Fund Services (Cayman) Limited P.O. Box 1093 FINANCIAL CALENDAR Boundary Hall, Cricket Square From 1 January to 31 December Grand Cayman KY1-1102 Cayman Islands AUTHORIZED NAME OF THE COMPANY (CHINESE) 恒實礦業投資有限公司 AUTHORIZED NAME OF THE COMPANY (ENGLISH) Hengshi Mining Investments Limited HONG KONG SHARE REGISTRAR Computershare Hong Kong Investor Services Limited Shops 1712–1716 17th Floor, Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong Annual Report 2013 HENGSHI MINING INVESTMENTS LIMITED 3 Highlights of Financial Results The summary of our operating results, assets and liabilities, cash flows and key financial ratios is set out as follows: RESULTS For the year ended 31 December 2013 2012 2011 2010 RMB’000 RMB’000 RMB’000 RMB’000 Turnover 1,286,078 581,573 773,127 364,576 Cost of sales (575,255) (393,149) (351,054) (198,251) Gross profit 710,823 188,424 422,073 166,325 Distribution costs (4,739) (1,920) (7,354) (7,533) Administrative expenses (107,519) (101,538) (103,604) (38,348) Net finance costs (26,294) (7,506) (3,843) (3,091) Profit before taxation 572,271 77,460 307,272 117,353 Income tax (146,659) (22,666) (85,282) (30,418) Profit for the year 425,612 54,794 221,990 86,935 Other comprehensive income for the year (5,597) ––– Total comprehensive income for the year 420,015 54,794 221,990 86,935 Profit attributable to: Equity shareholders of the Company 397,513 48,450 162,510 94,887 Non-controlling interests 28,099 6,344 59,480 (7,952) Total comprehensive income attributable to: Equity shareholders of the Company 391,916 48,450 162,510 94,887 Non-controlling interests 28,099 6,344 59,480 (7,952) Earnings per share Basic and diluted (RMB) 0.34 0.04 0.14 0.08 4 HENGSHI MINING INVESTMENTS LIMITED Annual Report 2013 Highlights of Financial Results ASSETS, LIABILITIES AND NON-CONTROLLING INTERESTS As at 31 December 2013 2012 2011 2010 RMB’000 RMB’000 RMB’000 RMB’000 Current assets 1,112,446 222,526 202,333 224,274 Non-current assets 1,241,119 823,636 476,850 227,511 Current liabilities 309,654 747,569 445,043 248,551 Non-current liabilities 531,138 134,263 44,604 42,555 Total equity 1,512,773 164,330 189,536 160,679 Equity attributable to equity shareholders of the Company 1,459,079 138,735 131,759 143,631 Non-controlling interests 53,694 25,595 57,777 17,048 CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2013 2012 2011 2010 RMB’000 RMB’000 RMB’000 RMB’000 Net cash flow generated from operating activities 109,549 277,306 538,414 34,958 Net cash flow used in investing activities (337,036) (216,478) (276,585) (111,601) Net cash flow generated from/(used in) financing activities 1,197,997 (80,000) (243,527) 97,841 SELECTED FINANCIAL RATIOS For the year ended 31 December/as at 31 December 2013 2012 2011 2010 Gross profit margin 55.27% 32.40% 54.59% 45.62% Net profit margin 33.09% 9.42% 28.71% 23.85% Gearing ratio 35.72% 84.29% 72.09% 64.43% Return on total assets (Note) 35.21% 9.85% 55.02% 26.66% Note: Return on total assets for a given year is calculated as profit before net finance costs and income tax for that year divided by the average of opening and closing total asset balances. Annual Report 2013 HENGSHI MINING INVESTMENTS LIMITED 5 Chairman’s Statement Dear Shareholders,Shareholders, OnOn behalf of the board of directors (the(the “Board”)“Board”) of Hengshi Mining Investments Co.,Co., Ltd. (“Hengshi”(“Hengshi” or the ““Company”),Company”), I am pleased to present the report of the CompanyCompany and its subsidiaries (together,(together, the “Group”)“Group”) for the year ended 31 December 2013 (the “Year”) and extend our gratitude to the shareholders of the Company (the “Shareholders”). ANNUAL REVIEW 2013 was a year of continuous and overall slowdown in the global economy. Economic growth remained sluggish as a result of the slack pace of global economic recovery. Amid the severe global macro-economic condition, Hengshi overcame a number of difficulties and captured market opportunities, thus successfully listed on the Hong Kong Stock Exchange on 28 November 2013. Our strong growth in results and satisfactory financial and operating performance indicated that we were making steady progress towards the goal of being “the leading iron ore producer in China”. For the year ended 31 December 2013, the Group recorded sales volume of iron ores, preliminary concentrates and iron ore concentrates of approximately 2,101 kt, 553 kt and 884 kt respectively, representing an increase of approximately 106.2%, 51.1% and 137.6% respectively over the same period last year. The turnover and gross profit for the year were approximately RMB1,286.1 million and RMB710.8 million respectively, representing an increase of approximately 121.1% and 277.6% over that of 2012. The profit attributable to equity shareholders of the Company amounted to approximately RMB397.5 million, and basic earnings per share were approximately RMB0.34, representing an increase of 720.5% and 750.0% over 2012. The Group adhered to adopting a variety of measures simultaneously in terms of internal operation and management in order to continuously consolidate our core competitiveness and enhance the internal corporate value. By implementing numerous infrastructure and technical renovation works, the Company significantly improved its capacities. Meanwhile, we promoted benchmarking management and reduced production costs in an active and effective manner. We reinforced safety management and assessment as well as promoted the enforcement of production safety, governance and education campaigns in an active manner, eventually avoided serious injuries or fatalities throughout the year. Furthermore, the Group has adopted a wide range of environmental protection measures, with an aim to reducing the environmental impact arising from production and promoting eco and environmentally-friendly mining construction. 6 HENGSHI MINING INVESTMENTS LIMITED Annual Report 2013 Chairman’s Statement FUTURE OUTLOOK In 2014, the Group will continue to observe the strategy that solely focuses on the expansion of iron ore business. The Group will emphasize on the development theory of “rapid expansion with low costs” during our production and operation.