Monday, November 30, 2020
 
Columnist
Martin Hennecke
 
HUILI RES
HKEx Stock Code : 01303 
 
Corporate Profile
Principally engaged in the mining, ore processing and sales of nickel, copper, lead and zinc metal products in the People's Republic of China (the :PRC;).

Business Review - For the year ended December 31, 2012

The Company is principally engaged in mining and ore processing of diversified non-ferrous metal including nickel, copper, zinc and lead in Hami, Xinjiang. The Hami mining and exploration projects are located within close proximity to the regional city of Hami, Xinjiang, which is approximately 400 km south east of Urumqi, the capital of Xinjiang Uygur Autonomous Region. Urumqi and Hami are connected via a national highway, a railway and also by air services.

The Company, through its PRC subsidiaries Hami Jinhua Mineral Resource Exploiture Limited (..Hami Jinhua'') and Hami Jiatai Mineral Resource Exploiture Limited (..Hami Jiatai''), owns three mining projects and seven exploration projects in Hami, Xinjiang. Details of the projects are set out below:

Mining projects

The Company has three mining projects in Hami, Xinjiang. The mining projects, namely Project No. 2, Project No. 20 and Project Baiganhu, possess abundant and high grade nickel, copper, lead and zinc mineral resources. The Company also operates two metal concentrators nearby with each of them has an annual production capacity of 450,000 tons. Hami Jiatai Concentrator will process copper-nickel ores supplied by Project No. 20, Project H-989 as well as independent suppliers, and Hami Jinhua Concentrator will mainly process lead-zinc ores exploited from Project Baiganhu.

During the year under review, domestic demand for non-ferrous metals has remained weak, leading to decrease in selling prices. In response to the persistently sluggish market condition, the Company has strategically scaled down the production rates of its mining projects and processing plants in order to preserve the values of its mineral resources.

Exploration projects

The Company holds seven exploration permits in Hami, Xinjiang namely Project Baiganhu Gold, Project H-989, Project Heishan, Project Hongshanpo, Project Huangshan, Project Xidagou and Project Yinaoxia, covering more than 44 km2 exploration area with ore types covering gold, nickel, copper, lead and zinc. In view of the market condition as explained above, the Company has also attempted to review certain of its exploration plan so as to match the adjusted production schedules. In spite of the market downturn, the Company is still committed to devote reasonable effort to continue carrying out exploration activities in order to further strengthen its mineral resources.

Shaanxi acquisition

The Company has conditionally agreed to acquire the entire equity interest of Shaanxi Jiarun and Shaanxi Jiahe, which hold the exploration permits for Project Huaba (a vanadium-copper mine) and Project Huangjinmei (a gold mine), respectively. Details of the acquisitions were set out in the prospectus dated 29 December 2011 (the ..Prospectus''). Pursuant to two supplemental agreements dated 31 December 2012, the Company and the vendor agreed to extend the long stop date of the above acquisitions to 31 March 2013, in order to allow for sufficient time for the vendor to fulfill the outstanding conditions precedent of the acquisitions. Based on the latest understanding from the vendor, it is currently estimated that the outstanding conditions precedent of the Shaanxi Jiahe acquisition will be fulfilled by end of the first quarter of 2013 while the timing and the feasibility of the fulfillment of those of the Shaanxi Jiarun acquisition remain uncertain.

Business Outlook - For the year ended December 31, 2012

With the world economy continuing to struggle from recovery, it is anticipated that the market situation will remain shaky in the year ahead. Demand for non-ferrous metals is expected to be flat. On the other hand, the Chinese government has adopted tight monetary policies to control domestic inflation and this will unavoidably have a negative impact to non-ferrous metals prices.

The Group has reacted quickly in response to the stagnant market condition by strategically scaling down its mining and exploration activities in Hami. In the meantime, the Company has been working closely with the vendor of Shaanxi Jiahe to pursue for the completion of its acquisition. Shaanxi Jiahe owns Project Huangjinmei which has 9.4 tons of gold metal resources. It is expected that the acquisition of Shaanxi Jiahe can be completed by end of the first quarter of 2013. Following its completion, the Group will need to provide capital to Shaanxi Jiahe for its mine development and bring its washing plant into operation.

On 20 March 2013, the Company announced that it had entered into a framework agreement in relation to the possible acquisitions of a gold mine and a processing plant in the Republic of Ghana from certain independent third parties. The potential vendors have indicated that the target gold mine has approximately 150 tons of indicated and measured gold resources and the target processing plant has a designed capacity to process up to 1,000 tons of ores per day. Details of the possible acquisitions were set out in the announcement of the Company dated 20 March 2013. The said possible acquisitions are subject to due diligence and further negotiation. As such, no binding agreement has been entered into as at the date of this announcement. The Company believes that these possible acquisitions may provide good investment opportunities in gold, which its worldwide demand and price are believed to be more firm than non-ferrous metals.

Apart from diversification of investments, the Company will also take proactive steps to further strengthen its capital structure by cooperating with strategic investment partners. On 25 January 2013, a subscription agreement was entered into between the Company and ACE AXIS Limited (the ..Investor''), a company wholly owned by a Cayman limited partnership fund. CRRC Investment Ltd. (..CRRC'') is the holder of 45% of the capital of the general partner of such fund. Pursuant to the subscription agreement, the Investor has conditionally agreed to subscribe for the convertible bond and warrants of the Company with a total estimated net proceeds of HK$310.5 million, which is intended to be applied for the purpose of financing new project(s) of the Company if and when they materialize. Given the background of CRRC, the Company is expected to benefit from its experience in investments in natural resources projects for developing the Company's existing mining business and CRRC will bring in additional resources and investment opportunities to the Company.

Source: Huili Resources (01303) Annual Results Announcement
Chairman WANG Dayong Issued Capital (shares) 1,000M
Par Value HKD 0.1 Market Capitalisation (HKD) 1,950M
 
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