Friday, March 29, 2024
 
Columnist
Martin Hennecke
 
CHINA HANKING
HKEx Stock Code : 03788 
 
Corporate Profile
The Group's primary business operations include iron ore mining and the production and sale of iron ore concentrates.

Business Review - For the year ended December 31, 2012

For the year of 2012, the Group continued to enhance the exploration of iron ores, and kept new resources greater than the ore consumption. In the meantime, the Group further improved the capability of exploring raw ores and the production capacity of iron ore concentrates by upgrading and reconstructing the current mines and equipments and construction of new production facilities through a series of projects. In order to minimize the adverse impact upon single iron ore market brought by market fluctuations, while enhancing the domestic mine base, the Group also prudently expanded ways for mineral diversity by acquisition and development of metal projects overseas, so as to promote the Company's development soundly and steadily.

The Group completed the acquisition of Fushun Shangma in 2012. As Fushun Shangma is a common controlled entity of the ultimate controller of the Group, according to the accounting policy of the Group, the merger accounting for the common controlled entities should be as if they had been combined from the date when the combined entity or business first came under the control of the controller. Therefore, a restate adjustment to the financial information of the Group for previous years is required to be executed.

1. Major operation results

During the reporting period, the Group continued to expand the exploration of iron ores, and as of the end of 2012, the Group's iron ores output amounted to 6,934 thousand tons (2011: 5,841 thousand tons), a year on year increase of 18.7%; output of iron ore concentrates was 1,638 thousand tons (2011: 1,542 thousand tons), representing an increase of 6.2% as compared with last year; the sales amount reached 1,623 thousand tons (2011: 1,593 thousand tons, 59 thousand tons of which was agent sales); the gross profit was RMB740,964,000 (2011: RMB1,140,642,000) and the net profit was RMB360,156,000 (2011: RMB456,024,000); net earnings per share was RMB0.20 (2011: RMB0.29). The decrease of net profit compared to 2011 was mainly due to the slow down of domestic economic growth. As a consequence, the selling price of iron ore concentrates decreased to RMB830 per ton in 2012, representing a decrease of 21.8% as compared with last year.

The average cash operation cost per ton of iron ore concentrates of all mines was RMB355 (2011:RMB292), which was mainly due to an increase in general standard of resource tax since February 2012, from RMB9 per ton to RMB12 per ton for iron ores, and the increase in raw materials cost. Although the cash operation cost increased in 2012, the Group still maintained its competitive edge in its low cost advantage among the industry.

2. Major Acquisitions

The Company's established strategy embodies the diversification and internationalization of mineral resources. Apart from its notable effort in developing and producing iron ores, it also seeks the right opportunities to diversify the current categories of ores. These production and business tactics have formed a model which is characterized by focusing on iron ores and supplemented by gold and nickel. The Company also proactively promotes the strategy of diversification and develop other high quality resources such as copper. On the basis of strict risk control, the Company seeks to minimize impacts generated by market fluctuations by utilizing its asset and product portfolios of various ores. In 2012, the Group has actively engaged in the acquisition of Fushun Shangma and a large laterite nickel mine situated in Indonesia. Furthermore, the Group has acquired the southern cross gold project in Western Australia in the beginning of 2013. The acquisitions have created valuable opportunities for the Group to leverage its resources with its established strategy.

The Acquisition of Fushun Shangma

In order to promote the continuous expansion of the production capacity of iron ores, as well as to strengthen its domestic iron ore base, the Group has completed the acquisition of the 100% interest of Fushun Shangma in Fushun, Liaoning province in December 2012. Mines owned by Fushun Shangma (¡§Shangma Mine¡¨) possesses considerable resources reserves. As of 31 December 2012, the iron ore resources in Shangma Mine were approximately 21,252,000 tons, which contributed to an obvious increase of the Group's ore reserves. Besides, Shangma Mine was located at the central zone between Aoniu Mine and Xingzhou Mine. From the perspective of continuous development, the acquisition of Fushun Shangma is beneficial to the exploration preparation work, thus to form a completed reconnaissance block from Aoniu Mine to Xingzhou Mine, and will expand the space of the development of the Group in the iron ore exploration and significantly enhance the potential of resources reserves.

The Acquisition of the Large Laterit Nickel Mine Located in Indonesia

Nickel is widely used in the field of consumable, military, transportation, aerospace, marine industry and construction industries. Many countries, including the PRC, have considered nickel as a strategic resource. In December 2012, the Company announced the acquisition of the 70% interest of Northeastern Lion Limited (¡§Northeastern Lion¡¨), which was in the control of the large laterit nickel located in North Konawe Regency, South East Sulawesi Indonesia through its three project companies. The measured and indicated nickel resources and the inferred nickel resources of the Company reached approximately 3.75 million tons and 1.04 million tons respectively after the acquisition. Currently, one of the project companies has commenced mining and selling laterite nickel, and the Group possesses an alchemical technique for laterite nickel mining and metallurgy, which can be applied in Indonesia and has economic feasibility. The Group believes that this acquisition will provide the Company with a precise opportunity to get involved in the nickel market with comparatively low risk. Not only will it be complementary to the Company's existing business and will further enhance the Group's operations as a whole but it will also help to realize the development strategy of diversification and internationalization of the Company's mining resources and promote the Group to become an international mining company.

As at 4 March 2013, the above acquisition has been approved at the extraordinary general meeting of the Company.

Acquisition of Southern Cross Gold Project in Australia

In January 2013, the Group announced the acquisition of 100% interest in SXO's gold assets located in the centre of Yilgarn goldfield in western Australia. SXO currently holds a proven, indicated, inferred and Joint Ore Reserves Committee (¡§JORC¡¨) standard compliant gold resources of about 2.4 million ounces, at an average grade of 3.6 g/t gold. SXO Gold Mine not only possesses rich gold resources of high quality, it is also equipped with excellent production and transportation facilities. The Group believes that by leveraging on the extensive management experience of the Company in gold mining, production and operation and through mine development and exploration investment in the future, the operation of SXO will be recovered and expanded, thus to expand the Group's sources of revenues and earnings base, which could promote the continued growth of the business of the Company.

The acquisition has obtained approval from the Australia's Foreign Investment Review Board on 14 February 2013.

3. Increment in Iron Ore Reserves

Resources are the core assets of the Company. As the largest independent privately-owned iron ore concentrate producer in the northeast area, the Group has committed to expand its iron ore reserves and obtain high quality iron ore resources with lower risks and costs through continuous investment in existing mine areas and surrounding geological areas.

During the year of 2012, the Group invested a total exploration capital of RMB9,323,000 (2011: RMB31,022,000), among which, RMB3,077,000, RMB2,416,000, RMB494,000 and RMB3,336,000 were invested by Maogong Mine, Aoniu Mine, Benxi Mine and Shangma Mine, respectively. The average expenditures incurred by the increased iron ore exploration is RMB0.81 per ton only. Meanwhile, an exploration prospective area of the Group has been greatly increased through the acquisition of Fushun Shangma which located at the middle zone between Aoniu Mine and Xingzhou Mine during the reporting period.

In 2012, the prospecting project of the Company started from 1 March to 10 November, which lasted for more than eight months, while carrying out the drilling exploration engineering in the four iron minings, Maogong Mine, Aoniu Mine, Mengjia Mine, Shangma Mine, a total of 126 holes were completed, with a total footage of 29,647.19 meters and an average hole depth of 235.30 meters.

As of the end of 2011, the Group owned 201 million tons of iron ore resources that complied with the JORC standards. By conducting various explorations as well as mining mergers and acquisitions in 2012, the iron ore resources gained a net increase by 18,641 thousand tons to 220 million tons, or a year on year increase of 9.45%.

As of the end of 2011, the Group owned 167 million tons of iron ore reserves that complied with the JORC standards. By conducting various explorations as well as mining mergers and acquisitions in 2012, the iron ore reserves gained a net increase by 7,241 thousand tons to 174 million tons.

4. Management of Projects and Capacity Expansion

As of the end of 2012, the Group obtained 10.796 square kilometers of mining rights. In order to further improve the processing capability of exploring raw ores and to expand the capacity of iron ore concentrates of our existing mines, the Group put more efforts on the expansion and reconstruction and carried out a series of construction projects to upgrade and reconstruct the existing mines as well as to construct new production facilities, which significantly enhanced its production scale. The Company has 4 key construction projects in 2012, which include the second phase of the technology improvement of the first processing plant of Aoniu Mine, mining works in Aoniu Mine; reconstruction and expansion of processing plant with annual capacity of 3 million tons in Maogong Mine and mining works in Benxi Mine.

Aoniu Mine

Preliminary result has been seen in the first phase of the technology improvement, and on such foundation, the second phase of the technology improvement of the first processing plant of Aoniu Mine has officially begun in February 2012. As of the end of 2012, the civil construction of the thickening pond was completed and has partially been put into production; the main plant is in its final phase and expected trial production will take place in the first half of 2013. The underground mining works in Aoniu Mine have already started in the mid of April 2012. As of the end of 2012, 80% of the engineering processes has been completed, and formed an initial output capacity.

Maogong Mine

High grading magnetic iron ore was found in Maogong Mine, and there is a huge potential to increase the ore reserves in the region. As of the end of 2012, 90% of the main body of civil construction of the main plant on the selected site of Maogong Mine has been completed, the central ore pocket has been finished; the main body of the 66kv substation has been finished and is ready for equipment installation; 40% of the civil works of coarse crushing workshops, screening and dry separation workshops and refuse bin have been completed; the 50m thickeners have been gradually transported to the site and ready for installation; the whole project is expected to be put into trial production by the end of 2013.
Benxi Mine

Starting from November 2011, the Benxi Mine has started the (Underground Excavation Project) with annual capacity of 1.2 million tons, and the design of the project is mixed with the adoption of shafts and ramps. As of the year ended 2012, the tunneling for the ramps has been completed and entered into mining period, while the main well towers foundation is also completed and ready for equipment installation and 87% of the project has been completed.

5. Promotion Construction of Safe and Environmental-friendly Mine

The Group has always been adhering to the objective of ¡§Safe Mine, Harmonious Mine, Green Mine¡¨. We incorporate the notion of safety management environment protection in its enterprise development and profit generation.

Conjunctively, the Group in exercising its social responsibility maintains its support to development strategy which is centered on the idea of ¡§recycling economy and comprehensive utilization¡¨. The Group also makes further effort in promoting soft environment building of mines as well as to build green mines which comply with national environmental standards on low carbon emissions.

Business Outlook - For the year ended December 31, 2012

Looking forward into 2013, the Group will implement construction investment plan in large scale and continues to strengthen the base of Liaoning iron ore, meanwhile, to specifically emphasize the development of nickel and gold mines acquired by the Group recently. The entrance of nickel and gold mines diversified the product portfolio of mineral assets and products, which could help the Group reduce the adverse effect arising from market fluctuation and promote the long-term and stable development of the Group's business.

In respect of the anticipation that the United States as well as China''s economy warmed up gradually, the growth in Chinese iron and steel enterprises in 2013 is expected to rejuvenate and the demand for iron ore will be improved. Moreover, coupled with a strong rebound in domestic iron ore market since the end of last year, iron ore prices are expected to be higher compared to last year. The Group holds a cautious and optimistic about the outlook in the iron ore market.

Looking forward, the Group expects that Aoniu Mine and Maogong Mine will become large modern mines with a yield capacity of ¡§one million tons¡¨ annually upon the completion of investment plans, which will improve the capacity of the Group's iron ore concentrates significantly. Meanwhile, according to the initial plan, upon the merger of laterit nickel mine located in Indonesia and gold ores located in western Australia, it is expected that in 2013 the nickel ore business will produce nickel ore 1,500,000 tons and nickel metal over 10,000 tons every year, and the gold mining business will reach a capacity of 30,000 tons of gold annually, which will inject new momentum into the Group in continuing improving revenue and profitability to promote the stable development of the Group''s business in the long term and generate greater returns for shareholders of the Company.

Source: China Hanking Hldgs (03788) Annual Results Announcement
Chairman Yang Min Issued Capital (shares) 1,830M
Par Value HKD 0.1 Market Capitalisation (HKD) 2,544M
 
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