Friday, November 27, 2020
 
Columnist
Martin Hennecke
 
CH ZHONGSHENG
HKEx Stock Code : 02623 
 
Corporate Profile
The Group is principally engaged in iron and ilmenite ore exploration, iron ore mining and iron ore processing to produce iron concentrates. The Group sells its products directly to its major customers who are mainly iron pellets or steel manufacturers.

Business Review - For the year ended December 31, 2012

The Group is principally engaged in iron and ilmenite ore exploration, iron ore mining and iron ore processing to produce iron concentrates in Shandong Province, the People's Republic of China (the ¡§PRC¡¨ or ¡§China¡¨). The Group's major customers are mainly iron pellets makers and steel manufacturers located in close proximity.

The Group possesses mining rights in respect of Yangzhuang Iron Mine (·¨²øÅKÄq), an iron ore mine located in Qinjiazhuang Village, Yangzhuang Town, Shandong Province, the PRC (¡§Yangzhuang Iron Mine¡¨), Zhuge Shangyu Ilmenite Mine (½Ñ¸¯¤W®nÅKÜgÄq), an ilmenite and magnetite mine located in Yishui County, Shandong Province, the PRC (¡§Zhuge Shangyu Ilmenite Mine¡¨), and Bashan Iron Project, an iron ore project located in Yishui County, and owns the exploration rights over Yangzhuang Iron Mine, Qinjiazhuang Ilmenite Project, an ilmenite ore project located in Qinjiazhuang District, Yishui County, Shandong Province, the PRC, Zhuge Shangyu Ilmenite Mine and Gaozhuang Shangyu Ilmenite Project, an ilmenite ore project located in Shangyu District, Yishui County, Shandong Province, the PRC.

Shandong Ishine Mining Industry Co. Ltd. (¡§Shandong Ishine¡¨), an indirectly wholly-owned subsidiary of the Company, entered into a sale and purchase agreement with Mr. Yang Wenxing on 19 December 2012 to acquire 95% of the equity interests of Á{¨^¾|¿³Üg·~ªÑ¥÷¦³­­¤½¥q (Linyi Luxing Titanium Co. Ltd.*) (¡§Luxing Titanium¡¨) at a consideration of RMB20.9 million (the ¡§Acquisition¡¨). The Acquisition was completed in February 2013. Luxing Titanium is a mining company based in Shandong Province, the PRC and is principally engaged in ilmenite ore mining and processing to produce iron concentrates and titanium concentrates. For details of the Acquisition, please refer to the announcement of the Company dated 19 December 2012.

The total revenue of the Group for the year ended 31 December 2012 has decreased by approximately RMB138.7 million, or approximately 13.7% as compared to that for the year ended 31 December 2011. The significant decrease in revenue is mainly due to decrease in sales of iron concentrates produced from iron ore of Yangzhuang Iron Mine and decrease in average selling price of iron concentrates during the year ended 31 December 2012.

The total comprehensive income attributable to equity holders of the Company has decreased by approximately RMB82.4 million, representing a drop of approximately 63.2% as compared to that for the year ended 31 December 2011. This was mainly due to (1) the slowdown of China's economy and the sluggish demand from steel makers in Shandong Province, the PRC and, therefore, the average selling price of iron concentrates decreased by approximately 20.0% for the year ended 31 December 2012 compared to that for the year ended 31 December 2011; (2) the impairment loss of approximately RMB4.0 million (equivalent to approximately AUD613,053) for the Boomarra project (¡§Boomarra Project¡¨), a tenement of Ishine International Resources Limited (¡§Ishine International¡¨) resulting from the decision of the board of Ishine International to stop pursuing further interest in Boomarra project; and (3) the impairment loss of approximately RMB3.0 million (equivalent to approximately AUD456,500) of the listed shares held in Athena Resources Limited due to the recognition of fair value loss as an impairment loss on the basis that it was considered as a permanent diminution in value.

The shares of the Company (¡§Shares¡¨) were listed on The Stock Exchange of Hong Kong Limited (the ¡§Stock Exchange¡¨) on 27 April 2012 (the ¡§Listing Date¡¨), under which a total of 129,760,000 Shares were issued at the offer price of HK$1.23 per Share. During the year ended 31 December 2012, the average selling price of iron concentrates with 65% iron content per tonne was RMB947.5. Since April 2012, the entire iron and steel market demonstrated an ongoing downward moving trend as the economy in China continued to remain sluggish. The price of iron concentrates with 65% iron content also fell from one bottom to another.

Economy either domestic or aboard saw a complicated situation in 2012. Recovery motivation was lacked both in the U.S. and Japan while the European debt crisis continued. Confident in the markets was lost and sluggish economy remained around the world. So did the domestic economy. With the downturn impact from the entire iron and steel industry, prices in the iron concentrates kept in low levels. The average selling price of iron concentrates in 2012 amounted to RMB947.5, which was 20% lower as compare with RMB1,184.5 of 2011. Facing the adverse position in the markets, leading by the Board of the Company, the Company together with its staff have taken the measures below in order to improve its operation and administration:

1. Utilize the synergy of sales, production and market to maximize the conservation of resources and to avoid risks of decrease in efficiency and resources being sold at unreasonable prices as a result of deduction in market prices and purposeless expansion of production scale.

Market information was collected through channels of internet and customers. Briefings on market were delivered on a daily basis and market trends were paid close attention to for conducting market analysis. Sales would be made before prices fell; production was reduced to bring inventory under control when selling prices went down; sales would be made according to plans while prices went up. Necessary adjustments were made to production in response to the market with appropriate volume of inventory in order to meet demands of the market as much as possible and preserve the reserves. The sales of iron concentrates produced from ores in 2012 amounted to 310,300 tonnes, dropped by 17,800 tonnes as compare with 328,100 tonnes in 2011.

2. Proactively mitigate trading risks

With the plunging price of iron concentrates, the market has taken a downturn since the third season of 2012 with trading risks going up, the Company gradually cut the scale of its trading business, including overseas mines processing and coarse iron powder trading to mitigate trading risks which were greatly affected by price fluctuations. Iron concentrates in overseas mines of 239,000 tonnes were processed for the year, 31,000 tonnes of which were produced in the second half of the year. Iron concentrates produced from mixing iron concentrates purchased from other suppliers and/or produced from coarse iron powder of 269,000 tonnes were sold for the year, 47,400 tonnes of which were sold in the second half of the year. Coarse iron powder of 430,000 tonnes were traded for the year, 150,000 tonnes of which were sold in the second half of the year.

3. Repay loans and cut interest rates to reduce the financial cost

The Group has put effort in reducing risk exposure in trading according to changes in the markets. Strategies such as bank loans reduction, loans repayment to cut interest rates for finance cost reduction were adopted by the Group to decrease the number of business which required relatively large capital. As at 31 December 2012, bank loans amounted to approximately RMB349.9 million, decreased by RMB167.7 million as compared to the figure as at 31 December 2011. Meanwhile, we tried to reduce note discount and decrease the discount interest cost by RMB4.77 million. During the period from January to December in 2012, financial cost amounted to 33.73 million, dropped by RMB14.74 million as compared with RMB48.46 million of the same period in 2011.

4. Control management expenditure to reduce the administrative cost

The Group has set up strict system for business-related entertainment as well as business trip with more specific standards for business-related entertainment as well as reimbursement standards and procedures for business trips. Business trips and entertainment expenses were reduced by approximately RMB3 million.

5. Optimizations and integrations to reduce labour cost

Faced with the continued downturn in the market of iron concentrates during the second half of 2012, the Group acted aggressively by conducting optimizations and integrations of positions in order to enhance the labour production efficiency. Shandong Ishine, one of the subsidiaries of the Company was downsized by 32 employees in order to reduce labour cost.

6. Strive for grants from the government aggressively

The Company was granted with RMB8.0 million by the PRC government upon the listing of the shares of the Company on the Stock Exchange in 2012.

7. Titanium-iron combination ¡V new strategic transformation from a supplier of iron ore production to a titanium-iron company.

Following adjustment of the national strategy, preparation for key technique for mining and selection of titanium concentrates has been completed by the first half of 2012. During the second half of 2012, the Company has entered into the titanium industry by capturing market opportunities and been prepared for the acquisition of Luxing Titanium, increasing resource reserves and further optimizing selection techniques. In the coming ten years, the Company will transform from a company solely concentrated in iron ores to a titanium-iron company based on iron concentrates with highlights in titanium concentrates.

Business Outlook - For the year ended December 31, 2012

Following adjustment of the national strategy, it is expected that there will be a significant increase in demand of titanium in China. The Company has entered into the titanium industry by capturing market opportunities and acquiring Luxing Titanium, increasing resource reserves and further improving the processing technology. In the next ten years, the Company will transform from a company only concentrated in iron ores to a titanium-iron company based on iron concentrates with highlights in titanium concentrates.

Source: China Zhongsheng (02623) Annual Results Announcement
Chairman Li Yunde Issued Capital (shares) 721M
Par Value HKD 0.01 Market Capitalisation (HKD) 2,163M
 
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