20-F 1 chnr_20f.htm ANNUAL REPORT Form 20-F

 



 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


————————

FORM 20-F

————————

(Mark One)

¨

 REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE

 

 ACT OF 1934

OR

 

 

þ

 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

 

 OF 1934

For the fiscal year ended December 31, 2016

OR

¨

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

 

 ACT OF 1934

For the transition period from: _____________ to _____________

OR

¨

 SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

 

 ACT OF 1934

Date of event requiring shell company report ___________

Commission file number: 0-26046

CHINA NATURAL RESOURCES, INC.

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s name into English)

British Virgin Islands

(Jurisdiction of incorporation or organization)

Room 2205, 22/F, West Tower, Shun Tak Centre,

168-200 Connaught Road Central, Sheung Wan, Hong Kong

(Address of principal executive offices)

Bonaventure Yue, Chief Financial Officer

Room 2205, 22/F, West Tower, Shun Tak Centre,

168-200 Connaught Road Central, Sheung Wan, Hong Kong

bonyue@chnr.net

 (Name, telephone number, e-mail and/or facsimile number and address of Registrant’s contact person)


Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class

 

Name of each exchange on which registered

Common Shares, without par value

 

NASDAQ Capital Market

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. 24,910,916 common shares as of December 31, 2016.

 

 




 


Indicate by check mark if the issuer is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨  No þ

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ¨  No þ

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ  No ¨

Indicate by check mark whether the registration has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer,” “large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ¨

 

Accelerated Filer ¨

 

Non-Accelerated Filer þ

 

Emerging Growth Company ¨

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ¨

 

International Financial Reporting Standards as issued

 

Other ¨

 

 

By the International Accounting Standards Board þ

 

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 ¨  Item 18 ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨  No þ





 


CONVENTIONS

Unless otherwise specified, all references in this Annual Report to "U.S. Dollars," "Dollars," "US$," or "$" are to United States dollars; all references to "Hong Kong Dollars" or "HK$" are to Hong Kong dollars; all references to "Bolivian Boliviano" or "BOB " are to Bolivian Boliviano; and all references to "Renminbi" or "CNY" are to Renminbi Yuan, which is the lawful currency of the People's Republic of China. The accounts of the Company and its subsidiaries are maintained in Hong Kong Dollars, or Bolivian Boliviano, or Renminbi. The financial statements of the Company and its subsidiaries are prepared in Renminbi. Translations of amounts from Renminbi to U.S. Dollars, from Bolivian Boliviano to U.S. Dollars, and from Hong Kong Dollars to U.S. Dollars are for the convenience of the reader. Unless otherwise indicated, any translations from Renminbi to U.S. Dollars or from U.S. Dollars to Renminbi have been made at the single rate of exchange (the "CNY Exchange Rate") as quoted by UKForex on December 31, 2016, which was US$1.00 = CNY6.9448. Translations from Bolivian Boliviano to U.S. Dollars or from U.S. Dollars to Bolivian Boliviano have been made at the single rate of exchange (the "BOB Exchange Rate") as quoted by www.exchangerates.org.uk on December 31, 2016, which was US$1.00 = BOB6.9322. Translations from Hong Kong Dollars to U.S. Dollars have been made at the official pegged exchange rate of US$1.00 = HK$7.80 as of December 31, 2016. The Renminbi is not freely convertible into foreign currencies and no representation is made that the Renminbi or U.S. Dollar amounts referred to herein could have been or could be converted into U.S. Dollars or Renminbi, as the case may be, at the CNY Exchange Rate or at all.

References to “Antay Pacha” are to Planta Metalurgica Antay Pacha S.A., a company organized in Bolivia and an indirect wholly-owned subsidiary of Double Grow.

References to "China Resources" are to China Resources Development, Inc., a Nevada company, and the predecessor to CHNR.

References to the “Company” or “CHNR” are to China Natural Resources, Inc. (formerly known as Billion Luck Company Ltd.), a British Virgin Islands company, which was the surviving company to a merger between China Resources and CHNR on December 9, 2004 (the “Redomicile Merger”). Unless the context otherwise requires, the Company and/ or CHNR includes the operations of its predecessor and subsidiaries.

References to “common shares” are to the common shares, without par value, of CHNR after the Redomicile Merger.

References to "common stock" are to the common stock, $0.001 par value, of China Resources.

References to "China Coal" are to China Coal Mining Investment Limited, a company organized in Hong Kong and a wholly-owned subsidiary of CHNR.

References to “Distribution” are to a special interim dividend declared by the Company satisfied by way of a distribution in specie of the entire issued share capital of Feishang Anthracite, being an aggregate of 124,554,580 ordinary shares in the capital of Feishang Anthracite with a par value of HK$0.01 each.

References to “Distribution Record Date” are to January 13, 2014, being the record date for ascertaining entitlements to the Distribution.

References to “Double Grow” are to Double Grow International Limited, a company organized in the British Virgin Islands and a wholly-owned subsidiary of CHNR.

References to “Easy Gain” are to Easy Gain Investments Limited, a company organized in the British Virgin Islands and a wholly-owned subsidiary of Double Grow.

References to "Feishang Anthracite” are to Feishang Anthracite Resources Limited (formerly known as Wealthy Year Limited), a company organized in the British Virgin Islands whose ordinary shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”) on January 22, 2014; and, until January 22, 2014, a wholly-owned subsidiary of CHNR.

References to “Feishang Dayun” are to Feishang Dayun Coal Mining Limited, a company organized in Hong Kong and a wholly-owned subsidiary of Pineboom.

References to “Feishang Enterprise” are to Feishang Enterprise Group Limited, a related company organized in the PRC and controlled by Mr. Li Feilie, the principal beneficial owner of the Company and its former Chairman and CEO.

References to “Feishang Management” are to Shenzhen Feishang Management and Consulting Co., Limited, a company organized in the PRC and a wholly-owned subsidiary of Yunnan Mining.



i



 


References to “Feishang Mining” are to Feishang Mining Holdings Limited, a company organized in the British Virgin Islands and, since February 3, 2006, a wholly-owned subsidiary of CHNR.

References to “Feishang Yongfu” are to Feishang Yongfu Mining Limited, a company organized in Hong Kong and a wholly owned subsidiary of Newhold.

References to “FMH Services” are to FMH Corporate Services Inc., a company organized in Florida and a wholly-owned subsidiary of CHNR.

References to “Full Profit” are to Full Profit Investments Limited, a company organized in the British Virgin Islands and a wholly-owned subsidiary of Double Grow.

References to the “Group” are to the Company and its directly or indirectly owned subsidiaries.

References to “IFRS” are to International Financial Reporting Standards as issued by the International Accounting Standards Board.

References to "Newhold" are to Newhold Investments Limited, a company organized in the British Virgin Islands and a wholly-owned subsidiary of CHNR.

References to "Pineboom" are to Pineboom Investments Limited, a company organized in the British Virgin Islands and a wholly-owned subsidiary of CHNR.

References to the "PRC" or "China" are to the People’s Republic of China and, solely for the purpose of this annual report, excluding Hong Kong, Macao, and Taiwan.

References to “Series B preferred shares” are to the Series B preferred shares, without par value, of CHNR, after the Redomicile Merger.

References to "Series B preferred stock" are to the Series B preferred stock, $.001 par value, of China Resources.

References to “shareholders” of CHNR are to the members of China Natural Resources, Inc., a British Virgin Islands corporation. “Members” under British Virgin Islands law are the equivalent of “shareholders” under the laws of the several states of the United States.

References to “Silver Moon” are to Silver Moon Technologies Limited, a company organized in the British Virgin Islands and an 80%-owned subsidiary of CHNR. Silver Moon is currently inactive.

References to “Spin-Off” are to the January 22, 2014 Distribution to the Company’s shareholders of the outstanding shares of Feishang Anthracite, which operated the Company’s coal mining and related business prior to January 22, 2014.

References to "Sunwide" are to Sunwide Capital Limited, a company organized in the British Virgin Islands and a wholly-owned subsidiary of CHNR. Sunwide is currently inactive.

References to “Wuhu Feishang” are to Wuhu Feishang Mining Development Co., Limited, a company organized in the PRC and, until March 3, 2017, a wholly-owned subsidiary of Feishang Mining.

References to “Yangpu Lianzhong” are to Yangpu Lianzhong Mining Co., Limited, a company organized in the PRC and a wholly-owned subsidiary of China Coal.

References to “Yangpu Shuanghu” are to Yangpu Shuanghu Industrial Development Co., Limited, a company organized in the PRC and a wholly-owned subsidiary of Feishang Yongfu.

References to “Yunnan Mining” are to Yunnan Feishang Mining Co., Limited, a company organized in the PRC and a wholly-owned subsidiary of Yangpu Shuanghu.




ii



 


Forward-Looking Statements

This Annual Report contains statements that constitute forward-looking statements within the meaning of Federal securities laws. These statements appear in a number of places in this Annual Report and include, without limitation, statements regarding the intent, belief and current expectations of the Company, its directors or its officers with respect to the Company's policies regarding investments, dispositions, financings, conflicts of interest and other matters; and trends affecting the Company's financial condition or results of operations. Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statement as a result of various factors. Among the risks and uncertainties that could cause our actual results to differ from our forward-looking statements are our intent, belief and current expectations as to business operations and operating results, uncertainties regarding the governmental, economic and political circumstances in the People’s Republic of China, uncertainties concerning our ability to commence commercial production of the Company’s copper smelting business in Bolivia, uncertainties regarding the political, legal, social and economic circumstances in Bolivia, uncertainties associated with volatility in the market price of copper, uncertainties associated with the Company’s ability to secure copper ore and other raw materials supply for its copper smelting production, uncertainties relating to possible future increases in operating expenses, including costs of labor and materials, and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission, including without limitation the information set forth in Item 3.D. of this Annual Report under the heading, “Risk Factors”. With respect to forward-looking statements that include a statement of its underlying assumptions or bases, the Company cautions that, while it believes such assumptions or bases to be reasonable and has formed them in good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material depending on the circumstances. When, in any forward-looking statement, the Company, or its management, expresses an expectation or belief as to future results, that expectation or belief is expressed in good faith and is believed to have a reasonable basis, but there can be no assurance that the stated expectation or belief will result or be achieved or accomplished.







iii



 


PART I


ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS


No disclosure is required in response to this Item.


ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE


No disclosure is required in response to this Item.


ITEM 3.

KEY INFORMATION


A.

Selected Financial Data


On February 3, 2006, we consummated the acquisition of all of the issued and outstanding capital stock of Feishang Mining (the “Acquisition”). Our acquisition of Feishang Mining was accounted for using the purchase method of accounting and was treated as a reverse acquisition because on a post-merger basis, the former Feishang Mining shareholder holds 86.4% of our outstanding common shares. As a result, Feishang Mining is deemed to be the acquirer for accounting purposes. We have retroactively restated our issued share capital to reflect the acquisition by Feishang Mining. The selected financial data are stated in CNY and are derived from the audited consolidated financial statements of the Company for the years ended December 31, 2012, 2013, 2014, 2015 and 2016, prepared and presented in accordance with IFRS. Details of the Company’s acquisition of Feishang Mining are described elsewhere in this Annual Report.


Ernst & Young, our former independent registered public accounting firm, issued an unqualified auditor's report on our consolidated statement of financial position as of December 31, 2014, and the related consolidated statements of profit or loss, statements of comprehensive income, statements of changes in equity and statements of cash flows for the years ended December 31, 2013 and 2014. Ernst & Young Hua Ming LLP, which has been engaged as our independent registered public accounting firm for the years ended December 31, 2015 and 2016, has issued unqualified auditor's reports on our consolidated statement of financial position as of December 31, 2015 and 2016, and the related consolidated statement of profit or loss, statement of comprehensive income, statement of changes in equity and statement of cash flows for the years ended December 31, 2015 and 2016.


The selected financial information as of and for the years ended December 31, 2012, 2013, 2014, 2015 and 2016 set forth below should be read in conjunction with, and is qualified in its entirety by reference to, “Item 5. Operating and Financial Review and Prospects”and our audited consolidated financial statements and the notes thereto included elsewhere in this Annual Report.


The statements of profit or loss data for each of the years ended December 31, 2014, 2015 and 2016 and the statements of financial position data as of December 31, 2014, 2015 and 2016 are derived from our audited consolidated financial statements included in Part III, Item 18, "Financial Statements" of this Annual Report. The statements of financial position data as of December 31, 2012 and 2013 and the statements of profit or loss data for the years ended December 31, 2012 and 2013 are derived from our audited consolidated financial statements that are not included in this Annual Report. Our historical results are not necessarily indicative of our results in any future period.  


In accordance with IFRS 5, statements of profit or loss have been restated retrospectively for all periods presented due to the Spin-Off and listing by way of introduction on the Hong Kong Stock Exchange of the Company’s wholly owned subsidiary, Feishang Anthracite, which operated the Company’s coal mining and related business. The Spin-Off was completed on January 22, 2014. The coal mining and related operations are therefore presented as discontinued operations.




1



 


The statement of profit or loss data for the year ended December 31, 2016, and the statement of financial position data as of December 31, 2016 include the results of operations of Double Grow, which was acquired on December 23, 2016. The statement of profit or loss data for the year ended December 31, 2015, and the statements of financial position data as of December 31, 2014 and 2015 have been restated retrospectively as a result of the acquisition of Double Grow, by using the pooling of interest method since Double Grow’s incorporation date of December 17, 2014.


 

 

Amounts in thousands, except share amounts and per share data

 

 

 

Year Ended

 

Year Ended

 

Year Ended

 

Year Ended

 

Year Ended

 

 

 

December 31,

 

December 31,

 

December 31,

 

December 31,

 

December 31,

 

 

 

2012

 

2013

 

2014

 

2015

 

2016

 

 

 

CNY

 

CNY

 

CNY

 

CNY

 

CNY

 

 

 

 

 

 

 

 

 

(Restated)

 

 

 

Statements of Profit or Loss Data

 

 

 

 

 

 

 

 

   

 

 

Continuing operations

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

14,728

 

41,360

 

8,303

 

18,342

 

 

Cost of sales

 

(9,036

)

(25,101

)

(6,563

)

(31,936

)

 

Gross profit/(loss)

 

5,692

 

16,259

 

1,740

 

(13,594

)

 

                                                                   

  

                        

   

                        

   

                        

   

                        

   

                        

   

(Loss)/profit before income tax from continuing operations

 

(15,356

)

857

 

(26,384

)

(39,945

)

(23,036

)

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the year from continuing operations attributable to:

 

 

 

 

 

 

 

 

 

 

 

Owners of the Company

 

(14,391

)

(1,285

)

(33,223

)

(41,449

)

(23,036

)

Non-controlling interests

 

 

 

 

 

 

 

 

(14,391

)

(1,285

)

(33,223

)

(41,449

)

(23,036

)

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations attributable to:

  

 

 

 

 

 

 

 

 

 

  

Owners of the Company

 

(75,312

(334,119

)

(9,925

)

 

 

Non-controlling interests

 

8,256

 

(418

)

(783

 

 

  

 

(67,056

(334,537

)

(10,708

)

 

 

  

 

 

 

 

 

 

 

 

 

 

 

Loss attributable to:

 

 

 

 

 

 

 

 

 

 

 

Owners of the Company

 

(89,703

(335,404

)

(43,148

)

(41,449

)

(23,036

)

Non-controlling interests

 

8,256

 

(418

)

(783

 

 

  

 

(81,447

(335,822

)

(43,931

)

(41,449

)

(23,036

)

                                                                   

  

                        

   

                        

   

                        

   

                        

   

                        

   

Loss per share attributable to owners of the Company:

Basic

 

 

 

 

 

 

 

 

 

 

 

For loss from continuing operations

 

(0.58

(0.05

)

(1.33

)

(1.66

)

(0.92

)

For loss from discontinued operations

 

(3.02

(13.41

)

(0.40

)

 

 

  

 

(3.60

(13.46

)

(1.73

)

(1.66

)

(0.92

)

  

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

For loss from continuing operations

 

(0.58

(0.05

)

(1.33

)

(1.66

)

(0.92

)

For loss from discontinued operations

 

(3.02

(13.41

)

(0.40

)

 

 

  

 

(3.60

(13.46

)

(1.73

)

(1.66

)

(0.92

)

  

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

 

 

 

 

 

 

 

 

 

Basic

 

24,910,916

 

24,910,916

 

24,910,916

 

24,910,916

 

24,910,916

 

Diluted

 

24,910,916

 

24,910,916

 

24,910,916

 

24,910,916

 

24,910,916

 



















2



 



 

 

Amounts in thousands, except share amounts and per share data

 

 

 

Year Ended

 

Year Ended

 

Year Ended

 

Year Ended

 

Year Ended

 

 

 

December 31,

 

December 31,

 

December 31,

 

December 31,

 

December 31,

 

 

 

2012

 

2013

 

2014

 

2015

 

2016

 

 

 

CNY

 

CNY

 

CNY

 

CNY

 

CNY

 

 

 

 

 

 

 

(Restated)

 

(Restated)

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

Statements of Financial Position Data

 

 

 

 

 

 

 

 

 

 

 

Total assets*

 

2,854,260

 

3,024,564

 

80,662

 

111,057

 

94,793

 

Current assets*

 

347,255

 

2,997,211

 

63,150

 

57,580

 

36,242

 

Current liabilities*

 

1,097,879

 

2,568,144

 

37,827

 

123,889

 

76,296

 

Total equity/ (deficiency in assets)

 

546,875

 

255,518

 

23,240

 

(17,799

13,195

 

Non-controlling interests

 

93,941

 

93,523

 

 

 

 

Equity attributable to Owners of the Company

 

452,934

 

161,995

 

23,240

 

(17,799

13,195

 

Capital stock

 

312,081

 

312,081

 

312,081

 

312,081

 

312,081

 

———————

*

In December 2013, the assets and liabilities of the coal mining segment and related business were reclassified to held for distribution, only as at December 31, 2013, and not as at the other year ends in the table.


The Company has not paid any dividends with respect to its common shares and has no present plan to pay any dividends in the foreseeable future. The Company intends to retain its earnings to support the development of its business. Any dividends paid in the future by the Company will be paid at the discretion of the Company’s Board of Directors and will be dependent upon distributions, if any, made by its subsidiaries, and on the Company’s results of operations, its financial condition and other factors deemed relevant by the Board of Directors. In accordance with the relevant PRC regulations and the Articles of Association of companies incorporated in the PRC, appropriations of net income of wholly owned foreign enterprises and sino-foreign joint venture companies as reflected in its statutory financial statements are to be allocated to either (i) each of the general reserve, enterprise expansion reserve and staff bonus and welfare reserve, respectively, or (ii) statutory reserve, as determined by the resolution of the Board of Directors annually. Prior to the Acquisition, the Board of Directors of Wuhu Feishang declared and paid dividends of CNY44.01 million (US$6.34 million) and CNY38.46 million (US$5.54 million) on February 28, 2005 and January 27, 2006, respectively. Wuhu Feishang declared dividends of CNY127.10 million (US$18.30 million) to its parent on April 27, 2012 which were paid in 2013. On June 28, 2013, Feishang Mining declared and paid dividends of HK$155.00 million (US$19.87 million) to the Company. On September 24, 2014, Wuhu Feishang declared dividends of CNY39.24 million (US$5.65 million) to its parent which were paid in 2015. On May 19, 2015, Feishang Mining declared and paid dividends of HK$39.50 million (US$5.06 million) to the Company.

Exchange Rates

The Company’s reporting currency is Renminbi. Translations of amounts from Renminbi to U.S. Dollars are for the convenience of the reader. The following table provides information concerning the exchange rate of Renminbi for U.S. Dollars for each of the preceding five years, and for each month during the preceding six months. The rates of exchange for 2012 to 2014 are the rates quoted by Bloomberg L.P. The rates of exchange for 2015 are the rates quoted by www.oanda.com. The rates of exchange for 2016 and the preceding six months are the rates quoted by UKForex. The Renminbi is not freely convertible into foreign currencies and the quotation of exchange rates does not imply convertibility of Renminbi into U.S. Dollars or other currencies. All foreign exchange transactions take place either through the Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People's Bank of China, the PRC’s central bank. No representation is made that the Renminbi or U.S. Dollar amounts referred to herein could have been or could be converted into U.S. Dollars or Renminbi, as the case may be, at the CNY Exchange Rate or at all.

The exchange rate on June 15, 2017 was US$1.00 = CNY6.8036.

The following table reflects the high and low exchange rates for each month during the previous six months:

MONTH

 

Dec-16

 

Jan-17

 

Feb-17

 

Mar-17

 

Apr-17

 

May-17

 

 

 

 

 

 

 

 

 

 

 

 

 

High

 

6.9597

 

6.9610

 

6.8836

 

6.9150

 

6.9202

 

6.9057

Low

 

6.8799

 

6.8393

 

6.8548

 

6.8702

 

6.8801

 

6.8206




3



 


The following table reflects the average exchange rate for each of the preceding five years, calculated by using the average of the exchange rates on the last day of each month during the period:


YEAR

 

2012

 

2013

 

2014

 

2015

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

High

 

6.3885

 

6.2445

 

6.2598

 

6.4917

 

6.9597

 

Low

 

6.2223

 

6.0543

 

6.0406

 

6.0933

 

6.4490

 

Average for period

 

6.2993

 

6.1417

 

6.1711

 

6.2436

 

6.6551

 


B.

Capitalization and Indebtedness

No disclosure is required in response to this Item.

C.

Reasons for the Offer and Use of Proceeds

No disclosure is required in response to this Item.

D.

Risk Factors

Risks Relating to Copper Smelting Operations in Bolivia

Volatility in the market price for copper may adversely affect the results of our smelting business.

The market prices for metals including copper ore have experienced significant volatility in recent years. Market prices depend upon many factors outside of our control and include industry specific factors such as supply and demand, as well as factors such as local and world-wide general economic conditions. The results of our copper smelting operations will be significantly affected by the market price for copper. For example, at times when the market price for copper ore is high, it may be difficult for us to secure sufficient raw material to enable us to operate at full capacity. Conversely, at times when the market price for copper cathodes (or electodeposited copper) is low, the costs of operating a copper smelting plant may not justify continued production.

Trial operations at our smelting plant have not commenced and we could encounter delays and expense prior to commencement of production.

We currently intend to conduct trial smelting operations commencing in the third quarter of 2017 with a view towards commencement of commercial production in the fourth quarter of 2017. In the event we encounter delays prior to or during the trial phase, scheduled commercial production may be correspondingly delayed and we may incur significant expense to resolve any problems we encounter.

We will incur operating costs prior to the commencement of revenue production.

Antay Pacha will incur operating expenses prior to the commencement of revenue production, including for management salaries, lease payments, licenses and permits and trial production expenses. Antay Pacha intends to fund these pre-revenue expenses through bank borrowings, internal resources and loans from related parties; but there is no assurance that Antay Pacha will secure the necessary operating funds on acceptable terms or at all.

We do not have a history of operations in Bolivia and are subject to all of the risks inherent in the operation of a business in a foreign country.

We have engaged a management team with experience in copper mining and smelting, however, many of these individuals are Chinese nationals and, since we do not have a history of operations in Bolivia, we will be subject to all of the political, legal, social and economic risks associated with operations in a foreign country.  We have engaged local attorneys and other professionals to guide us through legal, governmental and regulatory processes, however, we will likely encounter challenges associated with operations in Bolivia and there is no assurance that we will successfully overcome these challenges or that we will not incur significant time and expense in seeking to do so.

We will be subject to government regulation in various aspects of our Bolivian operations and our failure to comply with applicable government regulations could adversely affect us.


Antay Pacha is and will continue to be subject to be regulated in various aspects of its operations by a variety of laws, rules and regulations administered by the national and local governments, including laws, rules and regulations relating to: smelting operations; environmental protection; the use and preservation of dangerous substances; employment practices; as well as zoning and land use laws and a variety of local business laws, customs and implementation rules. Our failure to comply with applicable laws, rules, regulations and customs could adversely affect our operations and subject us to fines and other penalties including suspension or termination of our business permits.



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If we are unable to successfully manage the integration of our acquisition, we may not benefit from our acquisition strategy.

 

As part of our growth strategy, we seek to supplement internal growth with targeted acquisitions. We may not be successful in integrating newly acquired companies into our day-to-day operations for a number of reasons, including if we are unable to (a) retain the skilled managerial, technical, and sales personnel of acquired companies; (b) retain the customers of acquired companies; (c) integrate the services offered by acquired companies with our existing services to achieve a single package of service offerings; (d) establish and maintain uniform standards, controls, policies and procedures throughout our acquired companies; or (e) devote the management time required to successfully integrate acquired businesses.

We do not have binding agreements with customers to purchase our output of copper cathodes.

While we believe there is a robust market for copper products not only in Bolivia, but in other countries including Germany and China, we do not currently have any commitments to purchase our output of copper cathodes.

Financial transfers to or out of Bolivia are subject to certain restrictions.

The principal regulation governing foreign currency exchange in Bolivia is Law No. 516, the investment promotion law (Ley de Promoción de Inversiones, “LPI”) that was promulgated in April 2014. The LPI guarantees that if foreign investors fulfill tax and other obligations under Bolivian law, they may freely transfer abroad their net profits, the capital resulting from the liquidation of companies or from the sale of shares, dispute settlement awards, among other amounts, in freely convertible currency. However, financial transfers to or out of Bolivia must be channeled through the Bolivian financial system, as well as registered with Bolivia’s Central Bank and these procedures may make it more difficult for us to effect financial transactions with our Bolivian subsidiary.

The fluctuation of the Boliviano may materially and adversely affect your investment.

The Boliviano is the official currency of Bolivia and the financial books and records of Antay Pacha will be maintained in Boliviano and, thereafter, converted into Renminbi or United States Dollar for various financial, accounting and reporting purposes. The exchange rate of the Boliviano against the Renminbi, the United States Dollar and other currencies may fluctuate and is affected by, among other things, changes in Bolivia’s political and economic conditions. Any significant revaluation of the Boliviano may materially and adversely affect our cash flows, revenues and financial condition. Conversely, if we convert our Boliviano into Renminbi or United States Dollar, appreciation of the Renminbi or United States Dollar against the Boliviano could affect the amount of Boliviano we convert.


Risks Relating to Our Financial Condition

We have incurred losses from operations for each of the preceding three fiscal years and there is no assurance that we will generate profits in the future.

For the three years ended December 31, 2014, 2015 and 2016, we incurred operating losses from continuing operations of CNY27.38 million (US$3.94 million), CNY40.11 million (US$5.78 million) and CNY20.55 million (US$2.96 million), respectively. Our operating losses are attributable, in part, to depressed prices for ore that we mined, the temporary suspension of operations at Yangchong Mine and the fact that the trial run of our copper smelting operation has not yet started. Our profitability is dependent upon many factors, including our ability to fund our operating expenses, produce copper cathodes, and sell our production output to third parties. Other factors, such as uncertainty over the demand and market price for copper, are outside of our control. There is no assurance that we will be successful in our efforts to achieve profitability.

We do not currently generate revenues from operations and commercial production is not expected to commence until the fourth quarter of 2017; we will have to fund operating expenses until we are able to generate sufficient revenue to pay them.

We do not currently generate revenues from operations and commercial production at our copper smelting plant is not expected to commence until the fourth quarter of 2017. We will continue to incur operating expenses prior to the commencement of revenue-producing activities, and we intend to fund those expenses from the proceeds of loans from our principal Shareholder and bank borrowings. If we encounter delays prior to the commencement of commercial production, we will be required to fund operating expenses longer than expected. There is no assurance that we will be able to secure amounts sufficient to fund our operating expenses until such time as we are able to generate revenues sufficient to pay those expenses.




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Any failure to achieve and maintain effective internal control could have material adverse effect on our business, results of operations and the market price of our shares.

The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act (“SOX”), adopted rules requiring most public companies to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. In addition, under certain circumstances, an independent registered public accounting firm must report on the effectiveness of the company’s internal control over financial reporting.

Our management has concluded that our internal control over financial reporting as of December 31, 2016 was effective. However, we cannot assure you our management will not identify material weaknesses in the future during the Section 404(a) process or our independent public registered accounting firm will not identify material weaknesses during the Section 404(b) process if it was performed in the current year or in the future or for other reasons. In addition, because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. As a result, if we fail to maintain effective internal control over financial reporting or should we be unable to prevent or detect material misstatements due to error or fraud on a timely basis, investors could lose confidence in the reliability of our financial statements, which in turn could harm our business, results of operations and negatively impact the market price of our shares, and harm our reputation. Furthermore, we have incurred and expect to continue to incur considerable costs and to use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

The exclusion of our Copper Segment from the scope of management’s assessment of the effectiveness of the Company’s internal control over financial reporting could deprive investors of information that is material to an investment decision.


The Company acquired Double Grow and its subsidiaries including Antay Pacha (the “Copper Segment”) in December 2016 and accounted for the acquisition as a combination of entities under common control since the Company and Double Grow were under the common control of Mr. Li Feilie. As such, the assets and liabilities of Double Grow have been accounted for at historical cost and the consolidated financial statements of the Group prior to acquisition have been restated to include the results of operations of Double Grow and its subsidiaries on a combined basis when the entities first came under the common control of Mr. Li Feilie. The total assets as of December 31, 2015 and the loss for the year ended December 31, 2015 of Double Grow and its subsidiaries accounts for 53.5% and 14.3% of the total assets and loss of CHNR, respectively. The total assets as of December 31, 2016 and the loss for the year ended December 31, 2016 of Double Grow and its subsidiaries accounts for 61.8% and 33.1% of the total assets and loss of CHNR, respectively. In accordance with SEC guidance, management’s assessment of the effectiveness of a company’s internal control over financial reporting may exclude from its scope subsidiaries that were acquired in a material business combination during the preceding fiscal year. Accordingly, management’s assessment of the effectiveness of the Company’s internal control over financial reporting excludes the Copper Segment from its scope. The Copper Segment is currently the Company’s sole operating segment. In light of the significance of the Copper Segment to the Company, taken as a whole, the exclusion of the Copper Segment from the scope of management’s assessment could deprive investors of material information that might have been revealed had management included the Copper Segment within the scope of its assessment.

Risks Relating to PRC Operations

We have in the past and may in the future engage in business operations in the PRC; however, our current business operations are conducted outside of the PRC. Notwithstanding the foregoing, our executive officers, directors and principal shareholders, our auditors and our bank accounts are located in the PRC; and many of our (inactive) subsidiaries are organized and funded in the PRC. To the extent we remain subject to the laws, rules, regulations and customs of the PRC, investors should consider the following risk factors.

Investors should consider economic, legal and political factors applicable to investments in the PRC prior to investing in our company.

Since 1979, the PRC government has been making efforts to promote reforms of its economic system. These reforms have brought about marked economic growth and social progress, and the economy of China has shifted from a planned economy to a market-oriented economy. Our PRC subsidiaries have also benefited from the economic reforms implemented by the PRC government and the economic policies and measures. However, economic, legal and social policies in the PRC are not similar to those of Western governments and revisions or amendments may be made to these policies and measures from time to time, and we are not in a position to predict whether any change in the political, economic or social conditions may adversely affect our operating results, and how those changes may impact on us.



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The PRC legal system is a statutory law system. Unlike the common law system, decided legal cases have little significance for guidance, and rulings by the court can only be used as reference with little value as precedents. Since 1979, the PRC government has established a commercial law system, and significant progress has been made in promulgating laws and regulations relating to economic affairs. The PRC government is still in the process of developing a comprehensive set of laws and regulations. Examples are the organization of companies and their regulation, foreign investment, commerce, taxation and trade. However, these regulations are relatively new and the availability of public cases as well as the judicial interpretation of them is limited in number. Moreover, as they are not binding, both the implementation and interpretation of these regulations are uncertain in many areas. Also, more stringent environmental regulations may also affect our ability to comply with, or our costs to comply with, such regulations. Such changes, if implemented, may adversely affect our business operations and may reduce our profitability.

The interpretation of PRC laws may also be subject to policy changes reflecting domestic political changes, and new laws, changes to existing laws and the pre-emption of local regulations by national laws may adversely affect foreign investors. The activities of our subsidiaries in China are subject to PRC regulations governing PRC companies.

We face the risk that changes in the policies of the PRC government could have a significant impact upon the business we may be able to conduct in the PRC and the profitability of such business.

The PRC’s economy is in a transition from a planned economy to a market-oriented economy subject to five-year and annual plans adopted by the government that set national economic development goals. Policies of the PRC government can have significant effects on the economic conditions of the PRC. During this transition, we believe that the PRC will continue to strengthen its economic and trading relationships with foreign countries and business development in the PRC will follow market forces. While we believe that this trend will continue, we cannot assure you that this will be the case. A change in policies by the PRC government could adversely affect our interests by, among other factors: changes in laws, regulations or the interpretation thereof, confiscatory taxation, restrictions on currency conversion, imports or sources of supplies, or the expropriation or nationalization of private enterprises. Although the PRC government has been pursuing economic reform policies for more than three decades, we cannot assure you that the government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting the PRC's political, economic and social life.

PRC laws and regulations governing our current business operations are sometimes vague and uncertain. Any changes in such laws and regulations may have a material and adverse effect on our business.

There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of our arrangements with customers in the event of the imposition of statutory liens, death, bankruptcy and criminal proceedings. We and any future subsidiaries are considered foreign persons or foreign-funded enterprises under PRC laws, and as a result, we are required to comply with PRC laws and regulations. These laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our businesses.

Inflation in the PRC could negatively affect our profitability and growth.

While the PRC economy has experienced rapid growth, such growth has been uneven among various sectors of the economy and in different geographical areas of the country. Rapid economic growth can lead to growth in the money supply and rising inflation. If prices for our products rise at a rate that is insufficient to compensate for the rise in the costs of supplies, it may have an adverse effect on our profitability. In order to control inflation in the past, the PRC government has imposed controls on bank credit, limits on loans for fixed assets and restrictions on bank lending. Such an austere policy can lead to a slowing of economic growth, and recent statistics have, indeed, suggested that China’s high annual economic growth will slow down. According to China National Bureau of Statistics released data, China's consumer price index (CPI) remained stable for 2016, rising 2.0 percent year on year — well below the government's 3.0 percent target. As CPI is the main gauge of inflation, the lower than targeted CPI increase reflects that inflation in China remains largely in check.



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Our PRC subsidiaries are subject to restrictions on paying dividends and making other payments to us.

We are a holding company incorporated in the British Virgin Islands. As a result of our holding company structure, we rely primarily on dividend payments from our subsidiaries. However, PRC regulations currently permit the payment of dividends only out of accumulated profits, as determined in accordance with PRC accounting standards and regulations. Our subsidiaries in China are also required to set aside a portion of their after-tax profits as certain reserve funds according to PRC accounting standards and regulations. The PRC government also imposes controls on the conversion of Renminbi into foreign currencies and the remittance of currencies out of China. We may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency. Furthermore, if our subsidiaries in China incur debt in the future, the debt covenants may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive dividend from the operating companies due to contractual or other limitations on the payment of dividends, we may be unable to pay dividends on our common shares.  

Governmental control of currency conversion may affect payment of our obligations and the value of your investment.

The PRC government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of the PRC. Shortages in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to pay dividends, or otherwise satisfy foreign currency dominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. However, approval from appropriate governmental authorities is required where Renminbi is to be converted into foreign currency and remitted out of the PRC to pay capital expenses such as the repayment of bank loans denominated in foreign currencies.

The PRC government may also at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay certain of our expenses as they come due.

See Item 10.D. for further details of exchange controls in the PRC.

The fluctuation of the Renminbi may materially and adversely affect your investment.

The exchange rate of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC's political and economic conditions. As some of our operating expenses are denominated in Renminbi, any significant revaluation of the Renminbi may materially and adversely affect our cash flows and financial condition. Conversely, if we convert our Renminbi into U.S. dollars, should we determine to pay dividends on our common shares or for other business purposes, appreciation of the Renminbi against the U.S. dollar could affect the amount of U.S. dollars we convert. For example, to the extent that we need to convert U.S. dollars we receive from an offering of our securities into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar could have a material adverse effect on our business, financial condition and results of operations resulting in a lower income, a charge to our income statement and a reduction in the value of these U.S. assets. 

In 2016, the annual cumulative depreciation of the exchange rate of the Renminbi against the U.S. dollar was 6.95%. Since the beginning of 2017 to June 15, 2017, the exchange rate of the Renminbi against the U.S. dollar appreciated by 2.03%.



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Recent PRC SAFE Regulations regarding offshore financing activities by PRC residents, have undergone continuous changes which may increase the administrative burden we face and create regulatory uncertainties that could adversely affect the implementation of our acquisition strategy, and a failure by our shareholders who are PRC residents to make any required applications and filings pursuant to such regulations may prevent us from being able to distribute profits and could expose us and our PRC resident shareholders to liability under PRC law.

In 2005, the SAFE promulgated regulations in the form of public notices, which require registrations with, and approval from, the SAFE on direct or indirect offshore investment activities by PRC resident individuals. The SAFE regulations require that if an offshore company directly or indirectly formed by or controlled by PRC resident individuals, known as “SPC,” intends to acquire a PRC company, such acquisition will be subject to strict examination by the SAFE. The regulation also requires PRC resident individuals to repatriate all dividends of the SPC. Without registration with the SAFE by PRC resident individuals, the PRC entity may not be able to remit any of its profits out of the PRC as dividends or otherwise. Violation of the regulation may be deemed an evasion of foreign exchange rules and implicated PRC resident individuals may be liable for a penalty. However, there are uncertainties regarding the interpretation and application of current or future PRC laws and regulations, including the regulations established by the SAFE. To date, no registration has been filed with the SAFE. Even if it is determined that registration with the SAFE is required, management believes that applicable filings with the SAFE can be made at any time, and management does not foresee significant difficulties in obtaining the SAFE’s approval should it be required.

Our auditor is located in China, a jurisdiction where PCAOB is currently unable to conduct inspections without the approval of the PRC authorities, and as such, investors may be deprived of the benefits of such inspection. 

Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is required by the laws of the United States to undergo regular inspections by PCAOB to assess its compliance with the laws of the United States and professional standards. Our auditor is located in China, a jurisdiction where PCAOB is currently unable to conduct inspections without the approval of the PRC authorities. In May 2013, PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the China Securities Regulation Commission, or the CSRC, and the Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by PCAOB, the CSRC or the Ministry of Finance in the United States and the PRC, respectively. PCAOB continues to be in discussions with the CSRC and the Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with PCAOB and audit Chinese companies that trade on U.S. exchanges. 

Inspections of other firms that PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The inability of PCAOB to conduct inspections of independent registered public accounting firms operating in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections. 

Proceedings instituted recently by the SEC against five PRC-based accounting firms could result in our financial statements being determined to not be in compliance with the requirements of the Exchange Act. 

In December 2012, the SEC brought administrative proceedings against five accounting firms in China, alleging that they had refused to produce audit work papers and other documents related to certain other China-based companies under investigation by the SEC for potential accounting fraud. On January 22, 2014, an initial administrative law decision was issued, censuring these accounting firms and suspending four of the five firms from practicing before the SEC for a period of six months. The four firms appealed to the SEC against this decision and, on February 6, 2015, each of the four accounting firms agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. The firms' ability to continue to serve all their respective clients is not affected by the settlement. The settlement requires the firms to follow detailed procedures to seek to provide the SEC with access to Chinese firms' audit documents via the CSRC. If the firms do not follow these procedures, the SEC could impose penalties such as suspensions, or it could restart the administrative proceedings. The settlement did not require the firms to admit to any violation of law and preserves the firms' legal defenses in the event the administrative proceeding is restarted.

To our knowledge, we were not and are not subject to any SEC investigations, nor are we involved in the proceedings brought by the SEC against the accounting firms. However, the independent registered public accounting firms that issue the audit reports included in our annual reports filed with the SEC is affiliated to one of the four accounting firms above.




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In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about the proceedings against these audit firms may cause investor uncertainty regarding China-based, United States-listed companies and the market price of our ADSs may be adversely affected.

If our independent registered public accounting firms were denied, temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined to not be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting from the NYSE or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.

Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.

The Ministry of Commerce published a discussion draft of the proposed Foreign Investment Law in January 2015 aiming to, upon its enactment, replace the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. The draft Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. The Ministry of Commerce is currently soliciting comments on this draft and substantial uncertainties exist with respect to its enactment timetable, interpretation and implementation. The draft Foreign Investment Law, if enacted as proposed, may materially impact the viability of our current corporate structure, corporate governance and business operations in many aspects.

Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of “actual control” in determining whether a company should be treated as a foreign-invested enterprise, or an FIE. According to the definition set forth in the draft Foreign Investment Law, FIEs refer to enterprises established in China pursuant to PRC law that are solely or partially invested by foreign investors. The draft Foreign Investment Law specifically provides that entities established in China (without direct foreign equity ownership) but “controlled” by foreign investors, through contract or trust for example, will be treated as FIEs. Once an entity falls within the definition of FIE, it may be subject to foreign investment “restrictions” or “prohibitions” set forth in a “negative list” to be separately issued by the State Council later. If an FIE proposes to conduct business in an industry subject to foreign investment “restrictions” in the “negative list,” the FIE must go through a market entry clearance by the Ministry of Commerce before being established. If an FIE proposes to conduct business in an industry subject to foreign investment “prohibitions” in the “negative list,” it must not engage in the business. However, an FIE, during the market entry clearance process, may apply in writing to be treated as a PRC domestic enterprise if its foreign investor(s) is/are ultimately “controlled” by PRC government authorities and its affiliates and/or PRC citizens. In this connection, “control” is broadly defined in the draft law to cover the following summarized categories: (i) holding 50% of more of the voting rights of the subject entity; (ii) holding less than 50% of the voting rights of the subject entity but having the power to secure at least 50% of the seats on the board or other equivalent decision making bodies, or having the voting power to exert material influence on the board, the shareholders’ meeting or other equivalent decision making bodies; or (iii) having the power to exert decisive influence, via contractual or trust arrangements, over the subject entity’s operations, financial matters or other key aspects of business operations.

The draft Foreign Investment Law, if enacted as proposed, may also materially impact our corporate governance practice and increase our compliance costs. For instance, the draft Foreign Investment Law imposes stringent ad hoc and periodic information reporting requirements on foreign investors and the applicable FIEs. Aside from investment implementation report and investment amendment report that are required at each investment and alteration of investment specifics, an annual report is mandatory, and large foreign investors meeting certain criteria are required to report on a quarterly basis. Any company found to be non-compliant with these information reporting obligations may potentially be subject to fines and/or administrative or criminal liabilities, and the persons directly responsible may be subject to criminal liabilities.



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Risks Relating to Foreign Private Issuer Status

Because our assets are located outside of the United States and all of our directors and all our officers reside outside of the United States, it may be difficult for you to enforce your rights based on U.S. Federal Securities Laws against us and our officers and directors or to enforce a judgment of a United States court against us or our officers and directors in the PRC.

We are a British Virgin Islands company, our officers and directors are non-residents of the United States, our assets are located in the PRC and Bolivia, and our operations are conducted in the PRC and Bolivia. We do not maintain a business presence in the United States, Therefore, it may not be possible to effect service of process on such persons in the United States, and it may be difficult to enforce any judgments rendered against us or them. Moreover, there is doubt whether courts in the British Virgin Islands, the PRC or Bolivia would enforce (a) judgments of United States courts against us, or our directors or officers based on the civil liability provisions of the securities laws of the Unites States or any state, or (b) in original actions brought in the British Virgin Islands, the PRC or Bolivia, liabilities against us or any non-residents based upon the securities laws of the United States or any state.

Our status as a “foreign private issuer” results in less information being available about us than about domestic reporting companies.

We are foreign private issuer and are not required to file as much information about us as domestic issuers are required to file. In this regard:

·

we are not required to file quarterly reports on Form 10-Q and our annual reports on Form 20-F are subject to disclosure requirement that differ from Form 10-K;

·

we are exempt from the provisions of Regulation FD aimed at preventing issuers from making selective disclosures;

·

the SEC proxy statement and information statement rules do not apply to us; and

·

our officers, directors and principal shareholders are not required to file reports detailing their beneficial ownership of our shares.

Since there is generally greater information available about domestic issuers than about foreign private issuers such as us, the information we are not required to provide may make it more difficult to make investment decisions about us.

Our status as a “foreign private issuer” allows us to adopt IFRS accounting principles, which are different than accounting principles under U.S. GAAP.

We have adopted and presented our financial statements in accordance with IFRS accounting principles. IFRS is an internationally recognized body of accounting principles that are used by many companies outside of the United States to prepare their financial statements; and the SEC recently permitted foreign private issuers such as the Company to prepare and file their financial statements in accordance with IFRS rather than U.S GAAP. IFRS accounting principles are different from those of U.S. GAAP, and SEC rules do not require us to provide a reconciliation of IFRS accounting principles to those of U.S GAAP. Accordingly, we suggest that readers of our financial statements familiarize themselves with the provisions of IFRS accounting principles in order to better understand the differences between these two sets of principles.

We are not currently subject to the SEC’s XBRL requirements which may provide less information to investors than is provided by filers utilizing XBRL.

The SEC requires most reporting companies to provide financial statements in their periodic reports that include “XBRL tagging” – cross references that provide the reader with a greater understanding of the components of line items contained in financial statements. The SEC has recently announced taxonomy to enable filers of IFRS financial statements, such as the Company, to include XBRL tagging in their financial statements. However, under the SEC’s phase-in rules covering the new taxonomy, the Company is required to include XBRL tagging with its financial statements for the fiscal period ending December 31, 2017. Until we do so, readers will not have the benefit of XBRL tagging when reviewing our financial statements.

As a “foreign private issuer” we are not subject to certain requirements that other NASDAQ listed issuers are required to comply with, some of which are designed to provide information to and protect investors.

Our common shares are currently listed on the NASDAQ Capital Market and, for so long as our securities continue to be listed, we will remain subject to the rules and regulations established by NASDAQ applicable to listed companies. However, we have elected to claim certain exemptions afforded to foreign private issuers by relevant NASDAQ rules, and as a result:

·

a majority of the members on our Board of Directors are not independent as defined by NASDAQ rules;



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·

our independent directors do not hold regularly scheduled meetings in executive session;

·

while executive compensation is recommended by our Compensation Committee which is comprised of independent directors, the compensation of our executive officers is not determined by an independent committee of the board or by the independent members of the Board of Directors;

·

related party transactions are not required to be reviewed or approved by our audit committee or other independent body of the Board of Directors;

·

we are not required to solicit shareholder approval of stock plans, including those in which our officers or directors may participate; stock issuances that will result in a change in control; the issuance of our stock in related party acquisitions or other acquisitions in which we may issue 20% or more of our outstanding shares; or, below market issuances of 20% or more of our outstanding shares to any person; and

·

we are not required to hold an in-person annual meeting to elect directors and transact other business customarily conducted at an annual meeting.

Due to an exemption from NASDAQ rules applicable to “foreign private issuers,” our related party transactions may not receive the type of independent review process that other NASDAQ-listed companies receive, and the terms of these transactions may not be as favorable as could be obtained from unrelated parties.

We have historically engaged in a substantial number of transactions with related parties in the ordinary course of business, predominantly with our principal beneficial owner and former Chairman and Chief Executive Officer and/or companies that he owns or controls. These transactions are described in greater detail elsewhere in this Annual Report. In general, NASDAQ rules require that related party transactions be reviewed by an audit committee or other committee comprised of independent directors. However, under NASDAQ rules applicable to foreign private issuers such as our company, we are exempt from certain NASDAQ requirements, including the requirement applicable to independent director review of related party transactions. This exemption is available to us because the laws of the British Virgin Islands, our home jurisdiction, do not mandate independent review of related party transactions.

Notwithstanding the foregoing, non-recurring related party transactions (i.e., related party transactions that are not in the ordinary course of business) are submitted for approval by our Board of Directors, following disclosure of the related party’s interest in the transaction, and, in all cases, board approval has historically included the unanimous approval of our independent directors. In addition, our annual audited financial statements, including the related party transactions reported therein, are approved by our audit committee, which is comprised solely of independent directors. However, except to the limited extent described above, these transactions are not individually reviewed or approved solely by independent directors. While management believes that related party transactions are on terms at least as favorable to the Company as could be obtained from unrelated parties, there is no assurance that such is the case, or that shareholders would not be better protected if we were not exempt from, or we chose to voluntarily comply with, the NASDAQ rule.

Risks Related to our Common Shares

There are a limited number of our common shares in the public float and trading in our shares is not active; therefore, our common shares tend to experience price volatility.

There are currently approximately 9,448,397 of our common shares in the public float and, in general, there has not been an active trading market for our shares. Our shares tend to trade along with other shares of public companies whose operations are based in the People’s Republic of China, and, at times, in tandem with other natural resource companies. These shares tend to exhibit periods of extreme volatility and price fluctuations, even when there are no events peculiar to the Company that appear to warrant price changes. We cannot assure you that price volatility will not continue in the future or, as a result thereof, that market prices will reflect actual values of our company.

As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The share price could, for example, decline precipitously in the event that a large number of shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative new or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be in the case with the stock of a seasoned issuer.



12



 


Our principal beneficial owner and his affiliates control us through their stock ownership; and their interests may differ from other shareholders.

Mr. Li Feilie, beneficial owner of a majority of our outstanding common shares, beneficially owns approximately 59% of our outstanding common shares, and as a result, Mr. Li is and will continue to be able to influence the outcome of shareholder votes on various matters, including the election of directors and extraordinary corporate transactions such as business combinations. Mr. Li’s interests may differ from those of other shareholders. Additional information relating to the beneficial ownership of our securities is contained elsewhere in this Annual Report under Item 6.E. “Share Ownership”.

The rights of our shareholders are governed by British Virgin Islands law, the provisions of which may not be as favorable to shareholders as under U.S. law.

Our directors have the power to take certain actions without shareholder approval, including an amendment of our Memorandum of Association or Articles of Association (unless such amendment varies the rights attached to shares) or an increase or reduction in our authorized capital, which would require shareholder approval under the laws of most jurisdictions in the United States. In addition, the directors of a British Virgin Islands company, subject in certain cases to court approval but without shareholder approval, may, among other things, implement a reorganization, certain mergers or consolidations with a subsidiary, the sale, transfer, exchange or disposition of any assets, property, part of the business, or securities of the company, or any combination (provided the assets do not represent more than 50% of the total assets of the company and the sale is not outside of the usual or ordinary course of the company’s business), if they determine it is in the best interests of the company. Our ability to amend our Memorandum of Association and Articles of Association without shareholder approval could have the effect of delaying, deterring or preventing a change in our control without any further action by the shareholders, including a tender offer to purchase our common shares at a premium over then current market prices.

The elimination of monetary liability against our directors, officers and employees under our articles of association and the existence of indemnification of our directors, officers and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers and employees.

Our articles of association contains provisions which eliminate the liability of our directors for monetary damages to us and to our stockholders to the maximum extent permitted under the corporate laws of the British Virgin Islands. We may provide contractual indemnification obligations under agreements with our directors, officers and employees. These indemnification obligations could result in our incurring substantial expenditures to cover the cost of settlement or damage awards against directors, officers and employees, which we may be unable to recoup. These provisions and resultant costs may also discourage us from bringing a lawsuit against directors, officers and employees for breach of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our shareholders against our directors, officers and employees even though such actions, if successful, might otherwise benefit us Company and our shareholders.

Risks Related to the Spin-Off

We face uncertainties with respect to the applicability of PRC withholding tax on the Distribution.

Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises (‘‘SAT Circular 698’’) issued by the State Administration of Taxation (‘‘SAT’’) on December 10, 2009 with retroactive effect from January 1, 2008, if a non-PRC resident enterprise transfers its indirect equity interests in a PRC resident enterprise by disposing of its equity interests in an overseas holding company (‘‘Indirect Transfer’’), and such overseas holding company is located in a tax jurisdiction that has an effective tax rate of less than 12.5% or does not tax foreign income of its residents, the non-PRC resident enterprise, as the transferor, is required to report the Indirect Transfer to the relevant PRC tax authorities.

SAT issued an announcement in February 2015, i.e., the Notice of SAT on Several Issues Concerning the CIT on the Indirect Transfers of Properties by PRC Non-Residents or “Announcement 7,” which stipulates in greater detail how to evaluate the “reasonable commercial substance”.

Using a “substance over form” principle, the PRC tax authorities may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of avoiding PRC tax, in which case the gains derived from such “Indirect Transfer” may be subject to PRC withholding tax at a rate of up to 10%. SAT Circular 698 also provides that, if a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant PRC tax authorities have the authority to make reasonable adjustments to the taxable income of the transaction.



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There is uncertainty as to the application of SAT Circular 698 and Announcement 7. For example, while the term “Indirect Transfer” is not clearly defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with the PRC. As a result, there is a risk that the PRC tax authorities would regard the Distribution as an “Indirect Transfer” by CHNR of our PRC subsidiaries to CHNR’s shareholders subject to SAT Circular 698. If SAT Circular 698 were determined to be applicable to the Distribution by the PRC tax authorities, CHNR could be required to withhold taxes at a rate of up to 10% on any gains derived from the Distribution, which may be deemed as the difference between the fair value of our ordinary shares at the time of the Distribution and CHNR’s tax basis in our ordinary shares.

It is not possible to foresee all risks that may affect us. Moreover, we cannot predict whether we will successfully effectuate our current business plan. Each prospective purchaser is encouraged to carefully analyze the risks and merits of an investment in the shares and should take into consideration when making such analysis, among others, the Risk Factors discussed above.


ITEM 4.

INFORMATION ON THE COMPANY

A.

History and Development of the Company

From Inception Until 2006

China Resources was incorporated as Magenta Corp. on January 15, 1986, in the State of Nevada. China Resources had no operating business until control of it was acquired in December 1994, by the former shareholders of CHNR, who exchanged all of the issued and outstanding shares of capital stock of CHNR for 108,000 shares of China Resources' common stock. As a result of the acquisition, the former shareholders of CHNR acquired 90% of the then issued and outstanding shares of common stock of China Resources, and CHNR became a wholly owned subsidiary of China Resources. CHNR was incorporated in the British Virgin Islands on December 14, 1993.

On December 9, 2004, China Resources merged with and into CHNR (the “Redomicile Merger”). The Redomicile Merger was consummated through an exchange of shares of China Resources for shares of CHNR on a one-for-one basis. As a result of the Redomicile Merger, the Company became domiciled in the British Virgin Islands and CHNR succeeded to the rights and obligations of China Resources under its existing agreements and relationships. Prior to the Redomicile Merger, the Company’s common shares were traded on the NASDAQ Capital Market under the symbol “CHRB”. Following the Redomicile Merger, the trading symbol was changed to “CHNR”.

Until 2006, the Company has sought, acquired and operated various business opportunities that management believed could be operated profitably. From 2003 until 2006, the Company operated an advertising, promotion and public relations business, which was disposed of in July 2006.

Reverse Acquisition of Feishang Mining

On February 3, 2006, the Company consummated the Acquisition of all of the issued and outstanding capital stock of Feishang Mining. Feishang Mining beneficially owns 100% of the capital stock of Wuhu Feishang, a company established under the laws of the PRC, which is principally engaged in the mining of zinc, iron and other minerals for distribution in the PRC. We acquired the capital stock of Feishang Mining from Feishang Group Limited (“Feishang Group”), a British Virgin Islands company. Mr. Li Feilie, our former Chief Executive Officer and Chairman, is the sole beneficial owner of Feishang Group. In consideration for our receipt of the shares of Feishang Mining, the Company issued 9,980,593 of its common shares to Feishang Group, representing approximately 86.4% of the Company’s then issued and outstanding common shares (after giving effect to the exchange of 320,000 outstanding preferred shares for 320,000 common shares), and issued to Feishang Group warrants (the “Warrants”) to purchase an additional 4,500,000 common shares. Ching Lung Po, director, Chief Executive Officer and Chairman of the Company resigned at the closing of the Acquisition, and Mr. Li Feilie, Chairman of Feishang Mining, was appointed as director, Chief Executive Officer and Chairman of the Company. The Company’s other directors and executive officers were not changed as a result of the Acquisition.

The Warrants entitled the holder to purchase: 2,000,000 common shares at an exercise price of $4.00 per share for a period of two years from the closing date; 1,500,000 common shares at an exercise price of $4.50 per share for a period of three years from the closing date; and 1,000,000 shares at an exercise price of $5.00 per share for a period of four years from the closing date. The Warrants were fully exercised by Feishang Group, our principal shareholder, and the Company received gross proceeds of US$8,000,000, US$6,750,000 and US$5,000,000 in connection therewith during the years ended December 31, 2008, 2009 and 2010, respectively.



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Non-ferrous Metal Exploration and Mining; Coal Mining and Production; and Other Activities

At various times during the period from February 2006 until March 2017, we:

·

Engaged in the exploration, mineral extraction, processing and sales of iron, zinc and other non-ferrous metals extracted or produced at mines primarily located in Anhui Province in the PRC, as well as our operation of related businesses. On December 27, 2015, we temporarily suspended our metals mining operations due to the low market price for non-ferrous metals and because we had substantially depleted minable ore at Yangchong Mine, our sole operating mine. In March 2016, we engaged a geological firm to conduct geological surveys to determine the viability of further mining at or near Yangchong Mine. However, we sold our non-ferrous mining operations to an unrelated third party in March 2017 after concluding that current market prices for non-ferrous metals, and the related costs of extraction and processing, did not permit us to engage in profitable mining operations.

·

Engaged in the mining and production of anthracite coal at mines located in Guizhou Province in the PRC. We conducted these activities through our indirect wholly-owned subsidiary, Feishang Anthracite. We disposed of our coal mining and related businesses in connection with the January 2014 Spin-Off and listing on the Main Board of the Hong Kong Stock Exchange of the shares of Feishang Anthracite.

·

Engaged in copper smelting operations through our subsidiary Mark Faith Technologies, Inc. in Inner Mongolia. We sold our copper smelting operations to an unrelated third party in September 2009.

Metals mining operations included the exploration for, and extraction, production and sale of, non-ferrous metals. Our metal mining operations were conducted by Wuhu Feishang, a PRC company that was wholly-owned by Feishang Mining. Wuhu Feishang is principally engaged in the mining of zinc, iron, and other minerals and non-ferrous metals, and their sale in the PRC. On February 24, 2017, Feishang Mining together with Wuhu City Feishang Industrial Development Co., Ltd., as nominee for Feishang Mining (collectively “Sellers”), entered into an agreement (the “Purchase Agreement”) with Mr. Shen Yandi, an unrelated individual (“Purchaser”), pursuant to which Sellers sold and Purchaser purchased, all of Sellers’ right, title and interest in and to the outstanding capital stock (the “Equity Interests”) of Wuhu Feishang.

The CNY1.00 million (US$0.14 million) purchase price for the Equity Interests was delivered to Sellers, and Sellers delivered the Equity Interests to Purchaser, at a closing held on March 3, 2017, following receipt of regulatory approval for transfer of the Equity Interests to Purchaser. Pursuant to the Purchase Agreement:


·

Wuhu Feishang remains responsible for all of its liabilities and financial obligations other than those expressly undertaken by Sellers.

·

Sellers established a joint bank account and Purchaser contributed CNY3.00 million (US$0.43 million) into the account as an earnest money deposit. The account will also include funds to be deposited by Wuhu Feishang to fund certain of Wuhu Feishang’s on-going financial obligations under the Purchase Agreement. The funds in the account will be disbursed with the approval of Sellers, upon the attainment of milestones and in the manner described in the Purchase Agreement.

·

The parties allocated responsibility for certain on-going negotiations and settlements with employees and various townspeople affected by Wuhu Feishangs mining operations; as well as for certain on-going litigation.

·

Purchaser and Wuhu Feishang are prohibited from using the name Feishang in their operations.

·

A schedule of penalties is established to compensate a party for the other partys breach of the terms of the Purchase Agreement. In some cases, penalties are in addition to indemnification and/or performance obligations of a breaching party.


The foregoing description of the Purchase Agreement is only a summary and is qualified in its entirety by reference to the Purchase Agreement, a copy of which has been translated into English and incorporated by reference as Exhibit 4.14 to this Annual Report.


Bolivian Copper Smelting Operations

On December 23, 2016, the Company entered into an agreement with Feishang Hesheng, a related party, and completed the acquisition of all of the issued and outstanding capital stock (the “Acquired Shares”) of Double Grow, its direct and indirect subsidiaries Easy Gain and Full Profit, each of which is organized under the laws of the British Virgin Islands, and their operating subsidiary, Antay Pacha.




15



 


The US$1,541,129 purchase price for the Acquired Shares includes the assumption of US$1,441,129 of indebtedness owed by Double Grow to Feishang Hesheng (the “Loan”). The Company paid the purchase price by delivery of its check in favor of Feishang Hesheng in the amount of US$100,000, and is required under the agreement to assume Double Grow’s obligation to repay the Loan. In consideration of the Company’s assumption of the Loan, Feishang Hesheng delivered its Deed of Assignment of the Loan in favor of the Company.


The foregoing description of the agreement with Feishang Hesheng is only a summary and is qualified in its entirety by reference to the entire agreement, a copy of which has been translated into English and incorporated by reference as Exhibit 4.12 to this Annual Report.


Antay Pacha has constructed a copper smelting facility in Uyuni City, Potosi Province, in Western Bolivia. Plant construction is nearing completion and it is anticipated that trial production will commence during the third quarter of 2017 and that commercial production will commence during the fourth quarter of 2017. It is expected that, at full capacity, the plant will produce approximately 3,000 tonnes of copper cathodes annually. Antay Pacha intends to sell its production of copper cathodes to customers located primarily in Bolivia, Germany and the PRC.


Feishang Hesheng is beneficially owned by Mr. Li Feilie, the principal beneficial owner of the Company, and members of his family. Mr. Li is also the former Chief Executive Officer and Chairman of the Company. Mr. Wong Wah On Edward, currently the Chief Executive Officer and Chairman of the Company, is also the Company Secretary of Feishang Hesheng.

Other Matters

On December 31, 2013, the Board of Directors approved a conditional special interim dividend to the shareholders of CHNR satisfied by way of a distribution in specie of the entire issued share capital of Feishang Anthracite to all shareholders of CHNR in proportion to their respective shareholdings in CHNR on the Distribution Record Date. The Distribution became unconditional upon successful listing by way of introduction on the Main Board of the Hong Kong Stock Exchange of Feishang Anthracite on January 22, 2014.

The Company has not been a party to any bankruptcy, receivership or similar proceedings, trade suspensions or cease trade orders by any regulatory authority.

The Company’s executive offices are located at Room 2205, 22/F, West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Sheung Wan, Hong Kong, telephone +852 28107205. The Company does not currently maintain an agent in the United States.

B.

Business Overview

From February 2006 until March 2017, we engaged in the exploration, mineral extraction, processing and sales of iron, zinc and other non-ferrous metals extracted or produced at mines primarily located in Anhui Province in the PRC, as well as our operation of related businesses. We conducted these activities through our indirect wholly-owned subsidiary, Wuhu Feishang. Wuhu Feishang holds mining rights to mine, process and sell non-ferrous metals extracted or produced at Yangchong Mine located in Anhui Province in the PRC. Historically, we extracted or produced iron, zinc, micaceous oxide and sulphur concentrates at Yangchong Mine.

On December 27, 2015, we temporarily suspended our metals mining operations due to the low market price for non-ferrous metals and because we had substantially depleted minable ore at Yangchong Mine. In March 2016, we engaged a geological firm to conduct geological surveys to determine the viability of further mining at or near our current mine. However, we sold our non-ferrous mining operations to an unrelated third party in March 2017 after concluding that current market prices for non-ferrous metals did not permit us to engage in profitable mining operations. On March 3, 2017, Sellers and Purchaser consummated the transactions contemplated by the February 24, 2017 Purchase Agreement, and Sellers sold, and Purchaser purchased, all of Sellers’ right, title and interest in and to the Equity Interests of Wuhu Feishang. Wuhu Feishang was a wholly-owned subsidiary of Feishang Mining.

On December 23, 2016, we acquired all of the issued and outstanding capital stock of Double Grow, its direct and indirect subsidiaries Easy Gain and Full Profit, and their Bolivian operating subsidiary, Antay Pacha. Antay Pacha has constructed a copper smelting facility in Uyuni City, Potosi Province, in Western Bolivia. Plant construction is nearing completion and it is anticipated that trial production will commence during the third quarter of 2017 and that commercial production will commence during the fourth quarter of 2017. It is expected that, at full capacity, the plant will produce approximately 3,000 tonnes of copper cathodes annually. Antay Pacha intends to sell its production of copper cathodes to customers located primarily in Bolivia, Germany and the PRC.



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Management is also exploring new businesses opportunities to contribute to revenues and enhance shareholder values.


BUSINESS SEGMENT – Copper Smelting Operations

Our copper smelting operations are conducted by Antay Pacha, a Bolivian corporation which is owned 60% by Full Profit, 20% by Easy Gain and 20% by Double Grow.

Copper Industry and Market

Copper (chemical element symbol Cu) is a ductile metal with excellent electricity conductivity and is rather supple in its pure state and has a pinkish luster. It is primarily used as a heat conductor, an electrical conductor, a building material, and a constituent of various metal alloys. Copper’s properties of high electrical and thermal conductivity, together with good workability, allow it to be used in a wide range of applications, of which wire and cable and other electrical uses are by far the most prevalent. The primary uses of copper are in the building and construction industry, electrical and electronic products and, to a lesser extent, industrial machinery and equipment, consumer and general products and transportation.

Copper is an internationally traded commodity, the price of which is effectively established on commodity markets throughout the world. Copper price has been under pressure in recent years due to the slow recovery of global economy. In 2016, copper price remained volatile at low levels for most of the 2016 year, but had a slight rebound in the last two months of 2016, and reached an annual high of CNY48,405 (US$6,970) per tonne on November 28, 2016. The closing price at the end of 2016 was CNY44,940 (US$6,471) per tonne, representing an increase of 24% compared with the beginning of the year.

The following table shows the world refined production and world refined usage of copper over the past five years:

 

 

2012

 

2013

 

2014

 

2015

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

World refined production (in thousand tonnes)

 

 

20,203

 

 

21,060

 

 

22,483

 

 

22,872

 

 

23,406

 

World refined usage (in thousand tonnes)

 

 

20,473

 

 

21,396

 

 

22,880

 

 

23,035

 

 

23,461

 

China’s average price (CNY/ tonne)

 

 

57,212

 

 

53,199

 

 

49,085

 

 

40,751

 

 

38,152

 

———————

Source: ICSG and Wind Economic Database.

Copper Smelting

Overview of Antay Pacha

Antay Pacha’s principal activity will be to produce copper cathodes from copper ores by smelting, for distribution in Bolivia and foreign markets. The office and the copper smelting plant of Antay Pacha are located in Uyuni City, Potosi Province, in Western Bolivia. Antay Pacha’s offices, processing facilities and warehouses cover a total gross area of approximately 40,000 square meters. The land was leased from the local Bolivian government for a term of 12 years commencing May 2015, with monthly lease payments of BOB16,400 (US$2,366).


Antay Pacha plans to export its products via ports in Chile along the Pacific Ocean; or transports overland by truck from Antay Pacha to ports in neighboring countries and then by sea to designated destinations. In this way, Antay Pacha hopes to effectively control its transportation costs.


The plant proposes to process copper through a hydrometallurgy process whereby water is used in grinding, stirring and washing of oxide cooper ore and extraction of copper from copper sulfate solution, with daily consumption of 30 to 40 tonnes of water. Areas surrounding Antay Pacha contain substantial amounts of precious and commercially prized metals including copper and lithium; and it is anticipated that Antay Pacha will purchase copper ore from copper mines in surrounding areas, potentially including a copper mine owned and operated by Feishang Hesheng.


The final product of the smelting process is copper cathode, which is a form of copper that has a purity of 99.95%.  The major uses of copper cathodes are in the manufacture of copper rods for the wire and cable industry and copper tubes for consumer durable goods.  Copper cathodes are also used for the production of alloys such as brass, bronze and alloy steel, with applications in transportation, electrical appliances and machinery and construction. The potential market for copper cathodes is large, and includes demand from the electrical appliances industry, the power transmission industry, light industries, machinery manufacturers, the electronics industry and other downstream industries.




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Metallurgical Process


The metallurgical process of copper smelting is shown below:


[chnr_20f002.gif]




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Geography


The following diagrams show the geography of Antay Pacha’s copper smelting plant and its surrounding areas:


[chnr_20f004.gif]

Raw materials

Copper ores and sulfuric acid are two essential raw materials for Antay Pacha’s smelting operation. Copper ores are generally purchased from local copper mines in surrounding areas, which include Empressa Minera Jacha Uru S.A. (“Jacha Uru”), a copper mine owned and operated by Feishang Hesheng, a related party. To ensure stable supply of copper ores, Antay Pacha has entered into a long-term supply agreement with Cooperative Minera Estrella del Sur Ltda., a copper mine with a monthly supply capacity of 1500 ~ 2000 tonnes’ of copper ores.

Antay Pacha has also entered into a strategic co-operation agreement with a local copper mine, Minera DCH S.R.L. (“DCH”), to provide technical and operational support for extracting DCH’s copper ores, which will be sold exclusively to Antay Pacha as required by the agreement.

Sulfuric acid is currently purchased from Chile through Bolivia’s import traders because of significant price difference between Chile and Bolivia. In the event Bolivia tightens its import control over sulfuric acid, Antay Pacha will reevaluate purchasing sulfuric acid from local producers.

Suppliers

For the years ended December 31, 2015 and 2016, the largest five suppliers accounted for 99% and 100% of Antay Pacha’s purchases, respectively. For the years ended December 31, 2015 and 2016, the largest supplier accounted for 48% and 60% of Antay Pacha’s purchases, respectively. For the year ended December 31, 2015 and 2016, Jacha Uru was the largest supplier of copper ore to Antay Pacha.

Customers

Antay Pacha is not currently a party to any agreements relating to disposition of its output of copper cathodes, but plans to sell its copper products primarily to copper downstream processing manufacturers in China and Germany, and to copper traders in Bolivia.



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Competition

Antay Pacha has three major competitors in Bolivia which are also engaged in the production and sale of copper cathodes. Inasmuch as the majority of Antay Pacha’s copper products are expected to be sold to foreign markets such as China and Germany, and the total output quantity of Bolivia’s copper only constitutes a small portion of world copper production, the Company believes that its competitors will not pose a significant threat to Antay Pacha’s copper sales.

 Government Regulation of Copper Smelting Activities


Antay Pacha is and will continue to be subject to be regulated in various aspects of its operations by a variety of laws, rules and regulations administered by the national and local governments.

Mining and Metallurgy Regulations

The Ministry of Mining and Metallurgy of Bolivia is responsible for the administrative management of Bolivia’s mining industry, including the formulation, execution, evaluation and monitoring of policies regarding minerals and metals’ exploration, extraction, sieving, smelting and refining, trading, and industrialization. The smelting activities of Antay Pacha will be subject to rules and regulations promulgated by the Ministry of Mining and Metallurgy.

The Mining Administrative Jurisdictional Authority is an affiliate of the Ministry of Mining and Metallurgy. Pursuant to Bolivia’s No. 535 Mining Law promulgated on May 28, 2014, activities in connection with concentration, smelting and refining are required to obtain a business permit granted by the Mining Administrative Jurisdictional Authority. Business permits are subject to suspension or withdrawal if the business is found to have violated other laws, rules and regulations to which the business is subject.

Environmental Laws

The principal laws governing Bolivia’s environmental protection are Law No. 1333 - the environmental law promulgated on April 27, 1992, and Law No. 1700 - the forest law promulgated on 1996. Bolivia’s environmental laws are administered by the Ministry of Environment and Water and its subsidiaries.


An environmental license from the Ministry of Environment and Water and the Autonomous Municipal Government of Uyuni is a prerequisite for obtaining a business permit. Penalties for breaching the environmental protection laws include rectification within a limited timeframe, or suspension of production and other business activities if surrounding environments were seriously damaged.

Supreme Decree No. 24176 requires an environmental report detailing the activity, contruction and project (Actividad, Obra y Projecto, “AOP”) of the company be submitted for approval of the environmental license.

Regulation of Controlled Substances

The purchase, usage and preservation of dangerous substances, including sulfuric acid, hydrochloric acid and nitric acid, are governed by Bolivia’s Controlled Substances Institution, which is a subsidiary of the Ministry of Government. Applicable regulations require the filing of forms respecting the ownership and use of controlled substances, and the failure to timely submit required reports, or safety accident occurred during the time of preservation and use, could result in the imposition of a fine, with the prospect of economic sanctions or criminal responsibilities in case of serious violations.

Labor Laws

Pursuant to the Labor Law promulgated on May 24, 1939 and later amended in 1992, employers are subject to employee’s rights in contract signing, working condition, remuneration, work safety, occupational risk and compulsory medical and social insurance. Violation of the Labor Law may lead to avoidance of employment contract, compensation to employees, and fines imposed by labor authorities. When there is conflict between the employer company and the trade union or employee, and the mediation committee or the arbitral tribunal fails to reach a mediation agreement or arbitration, the trade union may declare a strike that could lead to the shutdown of the employer company and in the case of conflict with a worker, fines may be incurred. The Labor Law is administered by the Ministry of Labor Employment and Social Security and Jurisdictional Activity.



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Autonomous Municipal Government of Uyuni

Industrial and residential land of Antay Pacha’s smelting plant requires approval from the Autonomous Municipal Government of Uyuni, and operations are limited to the approved purposes. Pursuant to the Autonomous Municipal Government Law No. 482 promulgated on January 9, 2014, violation of land use rules may result in fines, and the person responsible and the legal entity may bear criminal responsibilities in case of serious violations.

Other Regulations

The business activities of Antay Pacha must also comply with Bolivia’s business laws, customs laws and associated implementation rules. Any violation of those laws and rules may lead to fines or criminal sanctions.


Management believes that Antay Pacha is in material compliance with all applicable government regulations of Bolivia.


NON-BUSINESS SEGMENT – Corporate Activities

Feishang Management

Feishang Management was incorporated in the PRC in October 2008. It is a wholly owned subsidiary of Yunnan Mining and is engaged in the provision of management and consulting services to the other companies in the group.

FMH Services

FMH Services is a Florida company incorporated in November 2007 in connection with a proposed transaction that was not consummated. FMH Services, which is wholly owned by CHNR, is currently dormant.

Sunwide

Sunwide was incorporated in the British Virgin Islands in January 2001. Sunwide is a wholly owned subsidiary of CHNR and is currently dormant.

Silver Moon

Silver Moon is a British Virgin Islands company incorporated in March 2000. Silver Moon, which is 80%-owned by CHNR, is not currently engaged in active business operations.

DISCONTINUED SEGMENT - Coal-Mining and Related Businesses

On December 31, 2013, the Board of Directors approved a conditional special interim dividend to the shareholders of CHNR satisfied by way of a distribution in specie of the entire issued share capital of Feishang Anthracite to all shareholders of CHNR in proportion to their respective shareholdings in CHNR on the Distribution Record Date. Pursuant to the Distribution, each shareholder of CHNR became entitled to five shares of Feishang Anthracite for every share of CHNR held on the Distribution Record Date. After the completion of the Distribution, CHNR no longer holds any shares in Feishang Anthracite.

The Spin-Off did not involve any offering of new shares of Feishang Anthracite or a public offering of any other securities and no funds were raised pursuant to the Spin-Off. The Distribution became unconditional upon successful listing by way of introduction on the Main Board of the Hong Kong Stock Exchange of Feishang Anthracite on January 22, 2014.

In preparation for the Distribution, the Board of Directors passed resolutions in writing on December 6, 2013 to approve the following matters:

-

change of the authorized share capital of Feishang Anthracite from US$50,000 divided into 50,000 ordinary shares of US$1.00 each to HK$10,000,000 divided into 1,000,000,000 Shares of HK$0.01 each;

-

repurchase and cancellation of all issued shares of US$1.00 each from CHNR for US$1.00; and

-

issue of a total of 124,554,580 Shares of HK$0.01 each to CHNR for HK$98,380,000.

These transactions were completed on December 12, 2013.

Prior to the Spin-Off, Feishang Anthracite and its direct and indirect subsidiaries operated the Company’s coal segment, including the exploration, construction, development and operation of coal mines located in Guizhou Province, the PRC.



21



 


C.

Organizational Structure

CHNR is a holding company directly or indirectly owning the following subsidiaries, to the extent indicated (as of June 15, 2017):

 

 

 

 

 

  

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

  

 

 

 

 

  

 

 

 

 

  

 

 

 

 

  

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHNR

(BVI)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100%

 

 

 

 

100%

 

 

 

 

80%

 

 

 

 

 

100%

 

 

 

 

100%

 

 

 

 

100%

 

 

 

 

100%

 

 

 

 

 

 

100%

 

 

 

 

 

 

 

 

FMH Services

(Florida, US)

 

Feishang Mining

(BVI)

 

Silver Moon

(BVI)

 

 

China Coal

(HK)

 

Sunwide

(BVI)

 

Newhold

(BVI)

 

Pineboom

(BVI)

 

 

 

Double Grow

(BVI)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100%

 

 

 

 

 

 

 

 

 

100%

 

 

 

 

100%

 

 

 

 

100%

 

 

 

 

 

 

100%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yangpu
Lianzhong

(PRC)

 

 

 

 

 

Feishang

Yongfu

(HK)

 

Feishang

Dayun

(HK)

 

Easy Gain

(BVI)

 

 

Full Profit

(BVI)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100%

 

 

 

 

 

 

 

 

 

 

 

20%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yangpu
Shuanghu

(PRC)

 

 

 

 

20%

Antay Pacha*

(Bolivia)

60%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yunnan Mining

(PRC)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Feishang
Management

(PRC)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

———————

*

All current operations are conducted by Antay Pacha.


See Item 4.B. above and Exhibit 8 for descriptions of the Company’s subsidiaries.

D.

Property, Plant and Equipment

The Company’s administrative offices and its principal subsidiaries are located in Hong Kong, Bolivia and Shenzhen (Guangdong Province) in the PRC. On September 1, 2013, the Company signed an office sharing agreement with Anka Consultants Limited (“Anka”), a private Hong Kong company that is owned by certain Directors of CHNR. Pursuant to the agreement, the Company shared 119 square meters out of the total of 368 square meters of the office premises. On April 1, 2017, the Company signed an office sharing agreement with Anka which superseded all previously signed agreements between the parties, pursuant to which the Company shares 184 square meters of the total area of the office premises. The agreement also provides that the Company shares certain costs and expenses in connection with their use of the office, in addition to some of the accounting and secretarial services and day-to-day office administration services provided by Anka.  For the years ended December 31, 2014, 2015 and 2016, the Company paid its share of rental expenses and rates to Anka amounting to approximately CNY565,000 (US$81,356), CNY560,000 (US$80,636) and CNY631,000 (US$90,859), respectively.

The offices, mining sites and other processing facilities of Wuhu Feishang are all located in Wuhu City, Anhui Province in the PRC. Wuhu Feishang’s office, processing facilities and warehouses cover a total gross area of approximately 26,000 square meters. As is typical in the PRC, the PRC government owns all of the land on which the improvements and mines are situated. Wuhu Feishang assumed the rights to use the land and its leasehold properties when it acquired the entire business of Anhui Fanchang, Wuhu Feishang’s predecessor. Upon consummation of the transactions contemplated by the February 24, 2017 Purchase Agreement, the Company severed its relationship with Wuhu Feishang effective March 3, 2017 and no longer occupies the facililes of Wuhu Feishang.

The offices and the copper smelting plant of Antay Pacha are all located in Uyuni City, Potosi Province, in Western Bolivia. Antay Pacha’s offices, processing facilities and warehouses cover a total gross area of approximately 40,000 square meters. The land was leased from the local Bolivian government for a term of 12 years commencing May 2015, with monthly lease payments of BOB16,400 (US$2,366).

For the years ended December 31, 2014, 2015, and 2016, the Company incurred capital expenditures (excluding fees for renewal of mining rights) of CNY54.24 million (US$7.81 million), CNY10.63 million (US$1.53 million) and CNY4.95 million (US$0.71 million), respectively.

See Item 5.F. for the Company’s material commitments for capital expenditures.



22



 


ITEM 4A.

UNRESOLVED STAFF COMMENTS

None.

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Forward-Looking Statements

The following discussion contains statements that constitute forward-looking statements within the meaning of Federal securities laws. These statements include, without limitation, statements regarding the intentions, beliefs and current expectations of Company management with respect to the Company's policies regarding investments, dispositions, financings, conflicts of interest and other matters; and trends affecting the Company's financial condition or results of operations. Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statement as a result of various factors. Among the risks and uncertainties that could cause our actual results to differ from our forward-looking statements are our intent, belief and current expectations as to business operations and operating results, uncertainties regarding the governmental, economic and political circumstances in the People’s Republic of China, uncertainties concerning our ability to commence commercial production of the Company’s copper smelting business in Bolivia, uncertainties regarding the political, legal, social and economic circumstances in Bolivia, uncertainties associated with volatility in the market price of copper, uncertainties associated with the Company’s ability to secure copper ore and other raw materials supply for its copper smelting production, uncertainties relating to possible future increases in operating expenses, including costs of labor and materials, and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission, including without limitation the information set forth in Item 3.D. of this Annual Report under the heading, “Risk Factors”. With respect to forward-looking statements that include a statement of its underlying assumptions or bases, the Company cautions that, while it believes its assumptions or bases are reasonable and have formed them in good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material depending on the circumstances. When, in any forward-looking statement, the Company, or its management, expresses an expectation or belief as to future results, that expectation or belief is expressed in good faith and is believed to have a reasonable basis, but there can be no assurance that the stated expectation or belief will result or be achieved or accomplished.

The following discussion and analysis of the results of operations and the Company’s financial position should be read in conjunction with the consolidated financial statements and accompanying notes for the years ended December 31, 2014, 2015 and 2016 included elsewhere herein. The consolidated financial statements of the Company have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”).

A.

Operating Results

Continuing operations

On December 31, 2013, the Board of Directors approved a conditional special interim dividend to the shareholders of CHNR satisfied by way of a distribution in specie of the entire issued share capital of Feishang Anthracite to all shareholders of CHNR in proportion to their respective shareholdings in CHNR on the Distribution Record Date. Pursuant to the Distribution, each shareholder of CHNR became entitled to five shares of Feishang Anthracite for each share of CHNR held on the Distribution Record Date. After the completion of the Distribution, CHNR no longer holds any shares in Feishang Anthracite and discontinued its acquisition and exploitation of mining rights, including the exploration, construction, development and operation of coal mines located in Guizhou Province, the PRC.

The Spin-Off did not involve any offering of new shares of Feishang Anthracite or a public offering of any other securities and no funds were raised pursuant to the Spin-Off. The Distribution became unconditional upon successful listing by way of introduction on the Main Board of the Hong Kong Stock Exchange of Feishang Anthracite on January 22, 2014.

On March 3, 2017, Feishang Mining disposed of its entire interest in Wuhu Feishang to Mr. Shen Yandi, an unrelated individual, for a consideration of CNY1.00 million (US$0.14 million), after concluding that current market prices for non-ferrous metals, and the related costs of extraction and processing, did not permit us to engage in profitable mining operations. As a result of the disposition of Wuhu Feishang, the Company no longer engages in the acquisition and exploitation of mining rights covering iron, zinc and other non-ferrous metals.

On December 23, 2016, CHNR acquired all of the issued and outstanding capital stock of Double Grow, its direct and indirect subsidiaries Easy Gain and Full Profit, and their operating subsidiary, Antay Pacha. Antay Pacha proposes to principally engage in the smelting of copper ore and production of copper cathodes for sale in markets including China, Germany and Bolivia. Antay Pacha and its approximately 20 employees are in the process of installing and fine-tuning equipment at its smelting and production plant located in Western Bolivia in anticipation of trial production scheduled to commence in the third quarter of 2017.



23



 


The following discussion reflects only the continuing operations of the Company:


Revenues and Gross Profit

Revenue for sales of all products is recognized when title passes to the customer in accordance with the relevant sales agreement, generally upon product acceptance by the customer.

2016 vs 2015

There were no sales for the year ended December 31, 2016, as compared to CNY18.34 million (US$2.64 million) for the year ended December 31, 2015. The decrease was due to the temporary suspension of production of our metals mining operations since December 2015, and the fact that the trial run of our copper smelting operation has not yet started.

2015 vs 2014

Sales from our metal segment’s operation increased by CNY10.04 million (US$1.44 million), or 120.91%, to CNY18.34 million (US$2.64 million) for the year ended December 31, 2015 from CNY8.30 million (US$1.20 million) for the year ended December 31, 2014. The increase was mainly contributed by an increase in the sales volume of zinc concentrates produced in prior years and iron concentrates produced in 2014 and 2015, partially offset by the drop of the average selling price per tonne of iron concentrates.

Sales were mainly derived from sales of zinc concentrates, iron concentrates and sulfur concentrates. Sales of zinc concentrates increased by CNY1.05 million (US$0.15 million), from nil in 2014 to CNY1.05 million (US$0.15 million) in 2015. Sales of iron concentrates also increased by CNY10.01 million (US$1.44 million), or 146.04%, from CNY6.86 million (US$0.99 million) in 2014 to CNY16.87 million (US$2.43 million) in 2015. The increase in iron concentrates sales was mainly contributed by an increase in the iron sales volume in 2015 from 8,056 tonnes in 2014 to 36,195 tonnes in 2015. Iron concentrates production decreased by 9,500 tonnes, or about 33.81% in response to the falling sales price. The average selling price of iron was CNY466 (US$67) per tonne in 2015, representing a drop of CNY385 (US$55), or 45.24%, from CNY851 (US$123) in 2014. Sales of sulfur concentrates decreased by CNY1.02 million (US$0.15 million), or 70.83%, from CNY1.44 million (US$0.21 million) in 2014 to CNY0.42 million (US$0.06 million) in 2015. We sold 1,530 tonnes of sulfur concentrates in 2015, representing a decrease of 3,620 tonnes, or 70.29% from 5,150 tonnes in 2014. The average selling price of sulfur concentrates decreased by CNY7 (US$1) per tonne, or 2.49%, from CNY281 (US$40) in 2014 to CNY274 (US$39) in 2015.

Gross loss for the year ended December 31, 2015 was CNY13.59 million (US$1.96 million) with a gross loss margin of 74.11%, as compared to a gross profit of CNY1.74 million (US$0.25 million) with a gross profit margin of 20.96% for the year ended December 31, 2014. The approximately CNY15.33 million (US$2.21 million), or 881.03%, drop in gross profit, was mainly due to the decline in selling prices of iron concentrates compared to the prior year’s.

Gross profit on sales of zinc for the year ended December 31, 2015 was CNY0.08 million (US$0.01 million), compared to nil for the same period in 2014.

Gross loss or gross loss margin on sales of iron for the year ended December 31, 2015 was CNY13.59 million (US$1.96 million), or approximately 80.55%, as compared to a gross profit of CNY1.85 million (US$0.27 million), or a gross profit margin of 26.95% for the same period in 2014. The drop in gross profit was primarily caused by the decline in the selling price of iron concentrates.

Gross loss was CNY0.09 million (US$0.01 million) on sales of sulfur concentrates for the year ended December 31, 2015 as comparable to the CNY0.07 million (US$0.01 million) for the same period in 2014. The slight increase in gross loss was primarily caused by the drop in both volume sold and selling price of sulfur concentrates.

Administrative Expenses

2016 vs 2015

Administrative expenses are mainly comprised of salaries and staff welfare expenses, termination benefits, depreciation expenses, travel and entertainment expenses, legal and professional fees, rental expenses, land usage tax and office expenses.



24



 


Administrative expenses in 2016 decreased by CNY5.15 million (US$0.74 million), or 25.55% to CNY15.01 million (US$2.16 million) from CNY20.16 million (US$2.90 million) in 2015. The decrease in administrative expenses was primarily caused by the decrease in termination benefits arising from the temporary suspension of operations at Yangchong Mine and the decrease in salaries and staff welfare expenses due to a decrease in the headcount of administrative staff of Yangchong Mine, which was partly offset by the increase of depreciation expenses and other administrative expenses of copper smelting operations in 2016 due to the completion of building construction and the increase in the headcount of administrative staff of Antay Pacha.

2015 vs 2014

Administrative expenses in 2015 increased by CNY7.93 million (US$1.14million), or 64.84% to CNY20.16 million (US$2.90 million) from CNY12.23 million (US$1.76 million) in 2014. The increase in administrative expenses was primarily caused by the termination benefits arising from the temporary suspension of operations at Yangchong Mine in December 2015 and the inclusion of administrative expenses of copper smelting operations in 2015 as a result of acquisition of Double Grow using the pooling of interest method.

Impairment Loss on Property, Plant and Equipment

There was no impairment loss on property, plant and equipment in 2016.

An impairment loss on property, plant and equipment of CNY7.54 million (US$1.09 million) was made in 2015, compared to the CNY8.07 million (US$1.16 million) impairment loss in 2014 in connection with the price decline of iron concentrates during the period. The recoverable value of Yangchong Mine was determined based on the mine’s value-in-use (“VIU”) using pre-tax cash flow projections, adopting certain assumptions based on the mine’s past performance and our expectations on market development, applying a pre-tax discount rate of 16.00%.


Write-down/(Reversal of write-down) of Inventories to Net Realizable Value, net

The reversal of write-down of inventories to net realizable value of CNY1.74 million (US$0.25 million) was recorded in 2016, as compared to CNY5.47 million (US$0.79 million) in 2015. The reversal was due to the recovery of the selling price of iron concentrates in 2016.

The reversal of write-down of inventories to net realizable value of CNY5.47 million (US$0.79 million) was recorded in 2015 along with the sales of finished goods which has been provided write-down of CNY11.12 million (US$1.60 million) previously. CNY5.65 million (US$0.81 million) written-down of inventories was provided in 2015, as compared to CNY9.30 million (US$1.34 million) provided in 2014, the decrease was mainly caused by the decrease of inventory balances as of December 31, 2015 as compared to December 31, 2014.


Other Operating Income/(Expenses), net

Other operating expenses in 2016 and 2015 mainly represented equipment testing and fine-tuning expenses incurred for trial run and commercial production purpose of copper smelting operations, which was partially offset by the government grants for enterprise development of a monitoring system at Yangchong Mine.

Other operating income in 2014 mainly represented consulting income.

Non-operating Expenses, net

2016 vs 2015

Non-operating expenses was CNY2.35 million (US$0.34 million) in 2016 as compared to non-operating expenses of CNY0.09 million (US$0.01 million) in 2015. The non-operating expenses in 2016 mainly represented the outsourcing compensation in connection with the suspension of production at Yangchong Mine.

2015 vs 2014

There was no material fluctuation in the non-operating expenses of CNY0.09 million (US$0.01 million) in 2015 as compared to non-operating expenses of CNY0.22 million (US$0.03 million) in 2014.



25



 


Income Tax Expenses

Management believes that the Company is not subject to taxes in the United States.

Under the current laws of the BVI, dividends and capital gains arising from the Company’s investments in the BVI are not subject to income taxes and no withholding tax is imposed on payments of dividends to the Company.

The Company’s subsidiaries in the PRC are subject to a PRC enterprise income tax rate of 25% applicable to both foreign investment enterprises and domestic companies.

The Company’s subsidiaries in Bolivia are subject to a Bolivian enterprise income tax rate of 25% applicable to both foreign investment enterprises and domestic companies.

2016 vs 2015

Income tax expenses decreased from CNY1.50 million (US$0.22 million) in 2015 to nil in 2016. The decrease was due to the absence of revenue in 2016 .

2015 vs 2014

Income tax expenses decreased from CNY6.84 million (US$0.98 million) in 2014 to CNY1.50 million (US$0.22 million) in 2015. The decrease was mainly contributed by (i) the income tax expenses amounting to CNY3.53 million (US$0.51 million) attributable to the profit distribution by Wuhu Feishang in 2014; and (ii) the deferred tax expenses amounting to CNY1.53 million (US$0.22 million) arising from the valuation allowance of deferred tax assets of Wuhu Feishang in 2014 compared to the lack of deferred tax expenses in 2015.

Loss from Continuing Operations

2016 vs 2015

Loss from continuing operations decreased from CNY41.45 million (US$5.97 million) in 2015 to CNY23.04 million (US$3.32 million) in 2016. The decreased loss was mainly due to (i) a gross loss amounting to CNY13.59 million (US$1.96 million) in 2015 as compared to nil in 2016; (ii) an impairment loss on property, plant and equipment amounting to CNY7.54 million (US$1.09 million) in 2015 as compared to nil in 2016; and (iii) a decrease of CNY5.15 million (US$0.74 million) in administrative expenses mainly due to the decrease in termination benefits and staff cost in connection with the temporary suspension of production of Yangchong Mine. The decreased loss was partially offset by (i) a decrease of CNY3.73 million (US$0.54 million) in reversal of write-down of inventories to net realizable value due to the decrease of inventory balance ; (ii) an increase of CNY3.24 million (US$0.47 million) in losses arising from temporary suspension of production at Yangchong Mine; and (iii) an increase of CNY2.18 million (US$0.31 million) due to one-off compensation to a contractor due to the suspension of production at Yangchong Mine in 2016.

2015 vs 2014

Loss from continuing operations increased from CNY33.22 million (US$4.78 million) in 2014 to CNY41.45 million (US$5.97 million) in 2015. The increased loss was mainly due to (i) a decrease of CNY15.33 million (US$2.21 million) in gross profit compared to the year ended December 31, 2014; (ii) a net loss of copper smelting operations in 2015 amounting to CNY5.87 million (US$0.85 million) was included as a result of acquisition of Double Grow by using pooling of interest method; and (iii) a termination benefit from the streamline operation amounting to CNY5.51 million (US$0.79 million) in 2015, partially offset by (i) a decrease in income tax expenses amounting to CNY5.34 million (US$0.77 million) attributable to the profit distribution by Wuhu Feishang in 2014; and (ii) a decrease of CNY14.77 million (US$2.13 million) in write-down of inventories to net realizable value compared to the year ended December 31, 2014.

Discontinued Operations

Discontinued operations represented the Company’s coal mining and related business operated and owned by Feishang Anthracite, the Company’s shares in which were distributed to the Company’s shareholders on January 22, 2014.

Net loss from discontinued operations in 2014 represented only one month’s operation of Feishang Anthracite.


Critical Accounting Policies


Our financial statements reflect the selection and application of accounting policies which require management to make significant estimates and assumptions. We believe that the following are some of the more significant judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations.



26



 


Revenue recognition


The Group sells its products pursuant to sales contracts entered into with its customers. Revenue for all products is recognized when the significant risks and rewards of ownership have passed to the customer, provided that the Group does not maintain neither managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, and when collectability is reasonably assured. The passing of the significant risks and rewards of ownership to the customer is based on the terms of the sales contract, generally upon delivery and acceptance of the product by the customer.

In accordance with the relevant tax laws in the PRC, value-added tax (“VAT”) is levied on the invoiced value of sales and is payable by the purchaser. The Group is required to remit the VAT it collects to the tax authority, but may deduct the VAT it has paid on eligible purchases. The difference between the amounts collected and paid is presented as VAT recoverable or payable in the consolidated statement of financial position.


Property, plant and equipment and depreciation


Property, plant and equipment comprise buildings, mining structures, mining rights, machinery and equipment, motor vehicles, exploration rights and construction in progress.

Exploration rights are capitalized and amortized over the term of the license granted to the Company by the authorities.

When proved and probable reserves have been determined, costs incurred to develop mines are capitalized as part of the cost of the mining structures.

Buildings, mining structures, machinery and equipment, and motor vehicles are stated at cost less accumulated depreciation and any impairment losses. Expenditures for routine repairs and maintenance are expensed as incurred.

Mining rights are stated at cost less accumulated amortization and any impairment losses. The costs of mining rights are initially capitalized when purchased. If proved and probable reserves are established for a property and it has been determined that a mineral property can be economically developed, costs are capitalized and are amortized upon production based on actual units of production over the estimated proved and probable reserves of the mines. For mining rights in which proved and probable reserves have not yet been established, the Group assesses the carrying value for impairment at the end of each reporting period. The Group's rights to extract minerals are contractually limited by time. However, the Group believes that it will be able to extend its licenses.

Mining related buildings, mining structures and mining related machinery and equipment are stated at cost less accumulated depreciation and any impairment losses. Those mining related assets for which proved and probable reserves have been established are depreciated upon production based on actual units of production over the estimated proved and probable reserves of the mines.

When an item of property, plant and equipment is classified as held for distribution or when it is part of a disposal group classified as held for distribution, it is not depreciated and is accounted for in accordance with IFRS 5, as further explained below.

Reserve estimates are reviewed when information becomes available that indicates a reserve change is needed, or at a minimum once a year. Any material effect from changes in estimates is considered in the period the change occurs.

Depreciation for the following items is calculated on the straight-line basis over each asset's estimated useful life down to the estimated residual value of each asset.

Estimated useful lives are as follows:

Non-mining related buildings

 

8 - 35 years

Non-mining related machinery and equipment

 

3 - 15 years

Motor vehicles

 

4 - 8 years


Residual values, useful lives and the depreciation method are reviewed and, adjusted if appropriate, at each reporting date.



27



 


When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any profit or loss on disposition is recognized in the statement of profit or loss.

Construction in progress is carried at cost and is to be depreciated when placed into service over the estimated useful lives or units of production of those assets. Construction costs are capitalized as incurred. Interest is capitalized as incurred during the construction period.

Exploration and evaluation costs

Exploration and evaluation assets include topographical and geological surveys, exploratory drilling, sampling and trenching and activities in relation to commercial and technical feasibility studies, and expenditure incurred to secure further mineralization in existing bodies and to expand the capacity of a mine. Expenditure incurred prior to acquiring legal rights to explore an area is expensed as incurred.

Once the exploration right to explore has been acquired, exploration and evaluation expenditure is charged to the consolidated statement of profit or loss as incurred, unless a future economic benefit is more likely than not to be realized. Exploration and evaluation assets acquired in a business combination are initially recognized at fair value. They are subsequently stated at cost less accumulated impairment.

When it can be reasonably ascertained that a mining property is capable of commercial production, exploration and evaluation costs are transferred to tangible or intangible assets according to the nature of the exploration and evaluation assets. If any project is abandoned during the evaluation stage, the total expenditure thereon will be written off.

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, financial assets, etc.), the asset’s recoverable amount is estimated.

Income taxes

Income tax comprises current and deferred tax. Income tax relating to items recognized outside profit or loss is recognized outside profit or loss, either as other comprehensive income or loss, or directly in equity.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted, by the end of the reporting date, taking into consideration interpretations and practices prevailing in the countries where the Group operates and generates taxable income.

Deferred tax is provided, using the liability method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

·

when the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and


·

in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except:

·

where the deferred tax assets relating to the deductible temporary differences arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and




28



 


·

in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

 

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it is probable that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Asset retirement obligations

The Group's legal or constructive obligations associated with the retirement of non-financial assets are recognized at fair value at the time the obligations are incurred and if it is probable that an outflow of resources will be required to settle the obligation, and a reasonable estimate of fair value can be made. Upon initial recognition of a liability, a corresponding amount is capitalized as part of the carrying amount of the related property, plant and equipment. Asset retirement obligations are regularly reviewed by management and are revised for changes in future estimated costs and regulatory requirements. Changes in the estimated timing of retirement or future estimated costs are dealt prospectively by recording an adjustment against the carrying value of the provision and a corresponding adjustment to property and equipment. Depreciation of the capitalized asset retirement cost is generally determined on a units-of-production basis. Accretion of the asset retirement obligation is recognized over time and generally will escalate over the life of the producing asset, typically as production declines. Accretion is included in finance costs in the consolidated statement of profit or loss. Any difference between the recorded obligation and the actual costs of reclamation is recorded in the consolidated statement of profit or loss in the period the obligation is settled.

Non-current assets and disposal groups held for distribution

Non-current assets and disposal groups are classified as held for distribution when the Group is committed to distribute the asset or disposal group to its owners. For this to be the case, the asset or disposal group must be available for immediate distribution in its present condition and its distribution must be highly probable.

Non-current assets and disposal groups (other than financial assets) classified as held for distribution are measured at the lower of their carrying amounts and fair values less costs to sell. Property, plant and equipment classified as held for distribution are not depreciated or amortized.

Impairment of property, plant and equipment

Long-lived assets to be held and used, such as property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. In estimating the recoverable amounts of assets, various assumptions, including future cash flows to be associated with the non-current assets and discount rates, are made. If future events do not correspond to such assumptions, the recoverable amounts will need to be revised, and this may have an impact on the Group's results of operations or financial position.



29



 


Changes in Accounting Policies and Disclosures

The Group has adopted the following new and revised IFRSs for the first time for the current year's financial statements.

Amendments to IFRS 10, IFRS 12 and IAS 28

Investment Entities: Applying the Consolidation Exception

Amendments to IFRS 11

Accounting for Acquisitions of Interests in Joint Operations

IFRS 14

Regulatory Deferral Accounts

Amendments to IAS 1

Disclosure Initiative

Amendments to IAS 16 and IAS 38

Clarification of Acceptable Methods of Depreciation and Amortization

Amendments to IAS 16 and IAS 41

Agriculture: Bearer Plants

Amendments to IAS 27

Equity Method in Separate Financial Statements

Annual Improvements
2012-2014 Cycle

Amendments to a number of IFRSs

 

Except for the amendments to IFRS 10, IFRS 12 and IAS 28, amendments to IFRS 11, IFRS 14, amendments to IAS 16 and IAS 41, amendments to IAS 27, and certain amendments included in the Annual Improvements 2012-2014 Cycle, which are not relevant to the preparation of the Group’s financial statements, the nature and the impact of the amendments are described below:


(a)

Amendments to IAS 1 include narrow-focus improvements in respect of the presentation and disclosure in financial statements. The amendments clarify:


(i)

the materiality requirements in IAS 1;

(ii)

that specific line items in the statement of profit or loss and the statement of financial position may be disaggregated;

(iii)

that entities have flexibility as to the order in which they present the notes to financial statements; and

(iv)

that the share of other comprehensive income of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss.


Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement of profit or loss. The amendments have had no significant impact on the Group’s financial statements.


(b)

Amendments to IAS 16 and IAS 38 clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through the use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. The amendments are applied prospectively. The amendments have had no impact on the financial position or performance of the Group as the Group has not used a revenue-based method for the calculation of depreciation of its non-current assets.


(c)

Annual Improvements to IFRSs 2012-2014 Cycle issued in September 2014 sets out amendments to a number of IFRSs. Details of the amendments are as follows:


·

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: Clarifies that changes to a plan of sale or a plan of distribution to owners should not be considered to be a new plan of disposal, rather it is a continuation of the original plan. Accordingly, there is no change in the application of the requirements in IFRS 5. The amendments also clarify that changing the disposal method does not change the date of classification of the non-current assets or disposal group held for sale. The amendments are applied prospectively. The amendments have had no impact on the Group as the Group did not have any change in the plan of sale or disposal method in respect of the disposal group held for sale during the year.




30



 


Issued but not yet effective International Financial Reporting Standards

The Group has not applied the following new and revised IFRSs, that have been issued but are not yet effective, in these financial statements:

Amendments to IFRS 2

Classification and Measurement of Share-based Payment Transactions (2)

Amendments to IFRS 4

Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (2)

IFRS 9

Financial Instruments (2)

Amendments to IFRS 10 and IAS 28

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (5)

IFRS 15

Revenue from Contracts with Customers (2)

Amendments to IFRS 15

Clarifications to IFRS 15 Revenue from Contracts with Customers (2)

IFRS 16

Leases(3)

Amendments to IAS 7

Disclosure Initiative(1)

Amendments to IAS 12

Recognition of Deferred Tax Assets for Unrealized Losses (1)

Amendments to IAS 40

Transfers of Investment Property(2)

IFRIC Interpretation 22

Foreign Currency Transactions and Advance Consideration(2)

Amendments to IFRS 12

   included in Annual improvements
2014-2016 Cycle

Disclosure of Interests in Other Entities (1)

Amendments to IFRS 1

   included in Annual improvements
2014-2016 Cycle

First-time Adoption of International Financial Reporting Standards(2)

Amendments to IAS 28

   included in Annual improvements
2014-2016 Cycle

Investments in Associates and Joint Ventures (2)

IFRS 17

Insurance Contracts(4)

IFRIC Interpretation 23

Uncertainty over Income Tax Treatments(3)

———————

1

Effective for annual periods beginning on or after 1 January 2017

2

Effective for annual periods beginning on or after 1 January 2018

3

Effective for annual periods beginning on or after 1 January 2019

4

Effective for annual periods beginning on or after 1 January 2021

5

No mandatory effective date yet determined but available for adoption


Further information about those IFRSs that are expected to be applicable to the Group is as follows:


In July 2014, the IASB issued the final version of IFRS 9, bringing together all phases of the financial instruments project to replace IAS 39 and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. The Group expects to adopt IFRS 9 from January 1, 2018. During 2016, the Group performed a high-level assessment of the impact of the adoption of IFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analyses or additional reasonable and supportable information being made available to the Group in the future. The expected impacts arising from the adoption of IFRS 9 are summarized as follows:


(a) Classification and measurement

The Group does not expect that the adoption of IFRS 9 will have a significant impact on the classification and measurement of its financial assets.




31



 


(b) Impairment

IFRS 9 requires an impairment on debt instruments recorded at amortized cost or at fair value through other comprehensive income, lease receivables, loan commitments and financial guarantee contracts that are not accounted for at fair value through profit or loss under IFRS 9, to be recorded based on an expected credit loss model either on a twelve-month basis or a lifetime basis. The Group expects to apply the simplified approach and record lifetime expected losses that are estimated based on the present value of all cash shortfalls over the remaining life of all of its trade and other receivables. The Group will perform a more detailed analysis which considers all reasonable and supportable information, including forward-looking elements, for estimation of expected credit losses on its trade and other receivables upon the adoption of IFRS 9.


IFRS 15 establishes a new five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach for measuring and recognizing revenue. The standard also introduces extensive qualitative and quantitative disclosure requirements, including disaggregation of total revenue, information about performance obligations, changes in contract asset and liability account balances between periods and key judgements and estimates. The standard will supersede all current revenue recognition requirements under IFRSs. In April 2016, the IASB issued amendments to IFRS 15 to address the implementation issues on identifying performance obligations, application guidance on principal versus agent and licences of intellectual property, and transition. The amendments are also intended to help ensure a more consistent application when entities adopt IFRS 15 and decrease the cost and complexity of applying the standard. The Group expects to adopt IFRS 15 on January 1, 2018 and is currently assessing the impact of IFRS 15 upon adoption.


IFRS 16 replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases - Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognize assets and liabilities for most leases. The standard includes two recognition exemptions for lessees – leases of low-value assets and short-term leases. At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). The right-of-use asset is subsequently measured at cost less accumulated depreciation and any impairment losses unless the right-of-use asset meets the definition of investment property in IAS 40. The lease liability is subsequently increased to reflect the interest on the lease liability and reduced for the lease payments. Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will also be required to remeasure the lease liability upon the occurrence of certain events, such as change in the lease term and change in future lease payments resulting from a change in an index or rate used to determine those payments. Lessees will generally recognize the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under IFRS 16 is substantially unchanged from the accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between operating leases and finance leases. The Group expects to adopt IFRS 16 on January 1, 2019 and is currently assessing the impact of IFRS 16 upon adoption.


Amendments to IAS 7 require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The amendments will result in additional disclosure to be provided in the financial statements. The Group expects to adopt the amendments from January 1, 2017.


Amendments to IAS 12 were issued with the purpose of addressing the recognition of deferred tax assets for unrealized losses related to debt instruments measured at fair value, although they also have a broader application for other situations. The amendments clarify that an entity, when assessing whether taxable profits will be available against which it can utilize a deductible temporary difference, needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount. The Group expects to adopt the amendments from January 1, 2017.



32



 


B.

Liquidity and Capital Resources

The Company’s primary liquidity needs are to fund operating expenses, capital expenditures and acquisitions. To date, the Company has financed its working capital requirements and capital expenditures through internally generated cash in prior years and non-interest bearing loans from the Shareholder and its affiliates. As a result of the temporary suspension of our metals mining operations and since the trial run of our copper smelting operation has not yet started, it can be expected that the availability of internally generated funds to sustain operations will decrease until the commencement of commercial production of our copper smelting plant. We will continue to incur operating expenses prior to the commencement of revenue-producing activities. Feishang Group and Feishang Enterprise have confirmed that the balance due to them as at December 31, 2016 are not required to be settled in the ensuing 12 months.

See Item 5.F. for a summary of our contractual obligations for future cash payments as at December 31, 2016.

Revenue and expenses of our PRC and Bolivian subsidiaries are denominated in Renminbi and Boliviano, respectively. We pay our corporate expenses in either Hong Kong dollars or U.S. dollars. Conversion of Renminbi is strictly regulated by the Chinese Government. Under PRC foreign exchange rules and regulations, payment of routine transactions under current accounts, including trade and service transactions and payment of dividends, may be made in foreign currencies without prior approval from the SAFE but are subject to procedural requirements. Strict foreign exchange control continues to apply to capital account transactions, such as direct investments and capital contributions. These transactions must be approved by the SAFE. Conversion of Boliviano is regulated by the Bolivian Government. The investment promotion law guarantees that if foreign investors fulfill tax and other obligations under Bolivian law, they may freely transfer abroad their net profits, the capital resulting from the liquidation of companies or from the sale of shares, dispute settlement awards, among other amounts, in freely convertible currency. Financial transfers to or out of Bolivia must be channeled through the Bolivian financial system, as well as registered with Bolivia’s Central Bank. See Item 10.D. for a further discussion of exchange controls in the PRC and Bolivia.

As of December 31, 2016, the breakdown of cash (in thousands) held in different currencies are as follows:


Currency and Amount

 

CNY Equivalent

 

US$ Equivalent

CNY5,362

 

 

5,362

 

 

 

772

 

BOB157

 

 

157

 

 

 

23

 

HK$11,561

 

 

10,354

 

 

 

1,491

 

US$483

 

 

3,355

 

 

 

483

 

Total

 

 

19,228

 

 

 

2,769

 

The Company expects to maintain a balanced portfolio of foreign currencies in order to meet its cash obligations in different currencies for its expenses, capital expenditures and acquisitions. Management does not anticipate the payment of dividends or any similar profit distribution from the Company’s PRC subsidiaries in the foreseeable future.

The following table sets forth the Company’s cash flow for each of the three years ended December 31, 2014, 2015 and 2016 including cash flows from discontinued operations:

 

Years Ended December 31,

 

 

2014

 

2015

 

2016

 

 

CNY'000

 

CNY'000

 

CNY'000

 

Cash and cash equivalent at beginning of year

*223,474

 

 

48,263

 

 

45,307

 

Net cash used in operating activities

(60,214

)

 

(21,569

)

 

(28,269

)

Net cash used in investing activities

(39,753

)

 

(435

)

 

(4,936

)

Net cash (used in)/from financing activities

(75,784

)

 

12,369

 

 

5,581

 

Net decrease in cash and cash equivalents

(175,751

)

 

(9,635

)

 

(27,624

)

Effect of exchange rate changes on cash

540

 

 

6,679

 

 

1,545

 

Cash and cash equivalent at end of year

48,263

 

 

45,307

 

 

19,228

 

——————

*

Include cash and cash equivalent attributable to a discontinued operation amounting to CNY146,883 (US$21,150).



33



 


The following table sets forth the Company’s financial condition and liquidity at the dates indicated:

 

Years Ended December 31,

 

 

2014

 

2015

 

2016

 

Current ratio

1.67x

 

 

0.46x

 

 

0.48x

 

Working capital (CNY'000)

25,323

 

 

(66,309

)

 

(40,054

)

Gearing ratio

 

 

 

 

 


2016 vs 2015

Net cash used in operating activities was CNY28.27 million (US$4.07 million) in 2016 and CNY21.57 million (US$3.11 million) in 2015. They were mainly caused by the operating losses for the corresponding years.

Net cash used in investing activities was CNY4.94 million (US$0.71 million) in 2016, as compared to CNY0.44 million (US$0.06 million) in 2015. The net cash used in investing activities was primarily comprised of the payment for the acquisition of property and equipment mainly in connection with the plant construction of Antay Pacha.

Net cash flows from financing activities was CNY5.58 million (US$0.80 million) in 2016, as compared to CNY12.37 million (US$1.78 million) in 2015. The net cash flows from financing activities was primarily comprised of the net advances from related parties.

2015 vs 2014

Net cash used in operating activities was CNY21.57 million (US$3.11 million) in 2015 and CNY60.21 million (US$8.67 million) in 2014. They were mainly caused by the operating losses for the corresponding years.

Net cash used in investing activities was CNY0.44 million (US$0.06 million) in 2015, as compared to CNY39.75 million (US$5.72 million) in 2014. The net cash used in investing activities was primarily comprised of the payment for the acquisition of property and equipment of CNY10.63 million (US$1.53 million) mainly in connection with the plant construction of Antay Pacha, partially offset by the net cash flows from acquisition of Antay Pacha of CNY8.96 million (US$1.29 million).

Net cash provided by financing activities was CNY12.37 million (US$1.78 million) in 2015, as compared to CNY75.78 million (US$10.91 million) net cash used in 2014. The net cash flows from financing activities was primarily comprised of the net advances from related parties.

After the Spin-Off in January 2014, the Company does not hold any interest-bearing loans and mining rights payables. In addition, we do not expect material capital expenditures for the Bolivian copper smelting operations. As such, the absence of cash flows from discontinued operations is considered positive to the Company’s future liquidity and capital resources.


Our liquidity, including our working capital, is affected by many factors including:

·

Funding of our on-going copper smelting activities through internally generated funds;

·

The timing of expenditures in relation to when our accounts receivable are paid;

·

Our ability to secure bank financing as and when required, on acceptable terms;

·

Our difficulty in accessing US capital markets to fund PRC and Bolivian operations; and

·

A lack of development of US trading markets for our securities, which has hampered our ability to use our securities as currency to fund acquisitions, business combinations and similar transactions.


See Item 5.F. for a tabular payment schedule of capital commitments of the Company.

Except as disclosed above, there have been no significant changes in the Company’s financial condition and liquidity during the years ended December 31, 2014, 2015 and 2016. The Company believes that its internally generated funds will be sufficient to satisfy its anticipated working capital needs for at least the next 12 months. However, we continue to evaluate expansion and growth prospects as they are presented to us from time to time and will continue to do so in the ordinary course. We anticipate that there will be significant capital expenditures ahead in the event of additional acquisitions.

C.

Research and development, patents and licenses, etc.

The Company did not incur any significant amounts on company-sponsored research and development activities during each of the last three fiscal years.



34



 


D.

Trend information

Except as set forth in the following paragraph, the Company does not believe that there have been recent trends in production, sales and inventory, the state of the order book and costs and selling prices since the latest financial year, nor any known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect of the Company’s net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.

E.

Off balance sheet arrangements

Under SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which we have:

·

Obligations under certain guarantee contracts;

·

A retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets;

·

Any obligation under a derivative instrument that is both indexed to our stock and classified in stockholder’s equity, or not reflected, in our statement of financial position; and

·

Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

As of December 31, 2016, the Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.


F.

Tabular disclosure of contractual obligations

Contractual Obligations as at December 31, 2016

 

Payments due by period

 

Total

 

2017

 

2018-2019

 

2020-2021

 

Later years

 

 

CNY’000

 

CNY’000

 

CNY’000

 

CNY’000

 

CNY’000

Operating lease obligations

 

3,942

 

1,337

 

1,026

 

516

 

1,063

Assets retirement obligations

 

5,302

 

4,922

 

 

 

380

Total

 

9,244

 

6,259

 

1,026

 

516

 

1,443


G.

Safe Harbor

The safe harbor provided in Section 27A of the Securities Act and Section 21E of the Exchange Act, or the statutory safe harbors, applies to forward-looking information provided pursuant to Item 5.F above. For our cautionary statement on the use of forward-looking statements in this Annual Report, see “Forward-Looking Statements” on page iii of this Annual Report.

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.

Directors and Senior Management

Executive Officers and Directors

The following table identifies the current directors and executive officers of the Company, and sets forth their ages and positions with the Company:

Name

 

Age

 

Position

 

 

 

 

 

Wong Wah On Edward

 

53

 

Chairman of the Board of Directors, President and Chief Executive Officer

Tam Cheuk Ho

 

54

 

Director

Yue Ming Wai Bonaventure

 

49

 

Director, Chief Financial Officer and Corporate Secretary

Lam Kwan Sing

 

47

 

Non-employee Director

Ng Kin Sing

 

54

 

Non-employee Director

Yip Wing Hang

 

50

 

Non-employee Director

Li Feilie

 

51

 

Director of Operating Subsidiaries



35



 


Mr. Wong Wah On Edward was appointed as a director in April 2015, and as Chairman of the Board of Directors, President and Chief Executive Officer in August 2016. Mr. Wong has served as the director of Feishang Anthracite since February 2013. He served as a director of the Company from January 1999 to January 2014, as its financial controller from December 2004 to January 2008, as its secretary from February 1999 to January 2014, and as its chief financial officer from January 2008 to January 2014. He served as secretary, financial controller and a director of China Resources from December 1997 to December 2004. Mr. Wong is also an independent non-executive director of Quali-Smart Holdings Limited, a company listed in Hong Kong since September 2015. From July 1988 through October 1992, he worked at Ernst & Young, Hong Kong where his most recent position was audit supervisor. From October 1992 through December 1994, Mr. Wong was the deputy finance director of Hong Wah (Holdings) Limited. He received a professional diploma in Company Secretaryship and Administration from the Hong Kong Polytechnic University. He is a fellow member of both the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants, and an associate member of the Hong Kong Institute of Chartered Secretaries. He is also a certified public accountant (practising) in Hong Kong.


Mr. Tam Cheuk Ho was appointed as a director in April 2015. Mr. Tam has served as the director of Feishang Anthracite since February 2013. He served as a director of the Company from December 1993 to December 1994 and from December 1997 to January 2014. He was also the chief financial officer and executive vice president of the Company, from December 2004 to January 2008, and from January 2008 to January 2014, respectively. He served as the chief financial officer and a director of China Resources from December 1994 to December 2004. From July 1984 through December 1991, he worked at Ernst & Young, Hong Kong where his most recent position was audit manager, and from February 1992 through September 1992, as financial controller of China Nuclear Industry 23 International Corporation Limited, a listed company in Hong Kong, where he was responsible for accounting and financial functions. From October 1992 through December 1994, Mr. Tam was finance director of Hong Wah (Holdings) Limited. He is a fellow member of both the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants. He is also a certified public accountant (practising) in Hong Kong. He holds a Bachelor of Business Administration degree from the Chinese University of Hong Kong.

Mr. Yue Ming Wai Bonaventure was appointed as a director in August 2016, and as Chief Financial Officer and Corporate Secretary in April 2015. Mr. Yue has been the chief financial officer and the company secretary of Feishang Anthracite since January 2014, and as an executive director of Feishang Anthracite since May 2015. He served as the financial controller of the Company from April 2008 to January 2014. From July 1990 to December 1992, Mr. Yue worked in the audit department of Ernst & Young, Hong Kong. From December 1992 to August 1993, he worked as an accountant in Sun Hung Kai & Co. Limited, a company listed in Hong Kong. From January 1995 to August 1996, he was the assistant financial controller and the company secretary of Nam Hing Holdings Limited, a company listed in Hong Kong. From August 1996 to April 1998, Mr. Yue served as an accounting manager of Leading Spirit (Holdings) Company Limited, a company then listed in Hong Kong. From November 1998 through April 2003, Mr. Yue was an associate director of a private registered investment advisory company. From April 2003 through October 2007, he served as the chief financial officer and the company secretary of a public manufacturing company. He has also served as a director of a private company engaging in the provision of corporate services since March 2003. From September 2007 to April 2008, Mr. Yue was the financial controller of Enerchina Holdings Limited, a listed company in Hong Kong. He has also been appointed as the company secretary of Feishang Non-metal Materials Technology Limited, a related company listed on the Growth Enterprise Market of Hong Kong since July 2015, and an independent non-executive director of A.Plus Group Holdings Limited, a company listed on the Growth Enterprise Market of Hong Kong since March 2016. Mr. Yue graduated from Hong Kong Baptist University with a Bachelor of Business Administration degree and was awarded a Master of Science degree in accounting and finance from the University of Manchester. He is a fellow member of the Hong Kong Institute of Chartered Secretaries, the Hong Kong Institute of Certified Public Accountants, and the Institute of Chartered Accountants in England & Wales. Mr. Yue is also a member of Chartered Accountants Australia & New Zealand, and a member accredited in business valuation of the American Institute of Certified Public Accountants.

Mr. Lam Kwan Sing has been a non-employee director and a member of CHNR’s audit committee and nominating and governance committee since December 2004, and a member of its compensation committee since November 2007. He served as a director and a member of the audit committee of China Resources from March 2003 until completion of the Redomicile Merger. From August 2010 to present, Mr. Lam has been the executive director of Rising Development Holdings Limited, a Hong Kong listed company, where he is responsible for corporate development. From May 2008 to July 2010, Mr. Lam was the executive director of Neo-China Land Group (Holdings) Limited, a Hong Kong listed company. In 2007, Mr. Lam served as the executive director of Forefront Group, a Hong Kong listed company. From 2002 to 2006, Mr. Lam served as the executive director of New Times Group Holdings Limited, a Hong Kong listed company. From 2000 to 2002, Mr. Lam was the business development manager of China Development Corporation Limited, a Hong Kong listed company. From 1997 to 2000, he was the business development manager of Chung Hwa Development Holdings Limited, a Hong Kong listed company. From 1995 to 1997, Mr. Lam was the assistant manager (Intermediaries supervision) of Hong Kong Securities and Futures Commission. Mr. Lam holds a Bachelor’s degree in Accountancy from the City University of Hong Kong.



36



 


Mr. Ng Kin Sing has been a non-employee director and a member of CHNR’s audit committee and nominating and governance committee since December 2004, and a member of its compensation committee since November 2007. He served as a director and a member of the audit committee of China Resources from February 1999 until completion of the Redomicile Merger. From March 2012 to present, Mr. Ng has been the director of Sky Innovation Limited, a private investment company. From April 1998 to February 2012, Mr. Ng was the managing director of Action Plan Limited, a private securities investment company. From November 1995 until March 1998, Mr. Ng was sales and dealing director for NatWest Markets (Asia) Limited; and from May 1985 until October 1996, he was the dealing director of BZW Asia Limited, an international securities brokerage house. Mr. Ng holds a Bachelor’s degree in Business Administration from the Chinese University of Hong Kong.

Mr. Yip Wing Hang has been a non-employee director and a member of CHNR’s audit committee and nominating and governance committee since June 2006, and a member of its compensation committee since November 2007. From October 2010 to present, Mr. Yip has been the marketing director of Athena Financial Services Limited where he is responsible for the sale and distribution of financial products. From February 2002 to September 2010, he was the marketing director of Hantec Investment Consultant Limited. From May 1997 to February 2002, Mr. Yip was the senior manager of CCIC Finance Limited. Mr. Yip holds a Masters degree in Accounting and Finance from the Lancaster University, UK.

Mr. Li Feilie served as a director, Chief Executive Officer and Chairman of the Board of CHNR from February 2006 to August 2016. He currently serves as director of Double Grow, Easy Gain, Full Profit, Feishang Mining, Newhold, Pineboom, China Coal, Feishang Dayun, Feishang Yongfu and FMH Services. He served as a director of Feishang Anthracite from January 2010 to July 2016, its Chairman from December 2013 to July 2016, and its Chief Executive Officer from December 2013 to March 2016. He served as director of Wuhu Feishang from December 2001 to July 2011. Mr. Li has been the chairman of Feishang Enterprise, WFID and Wuhu Port Co., Ltd., companies beneficially owned by him, since June 2000, from December 2001 to July 2011 and since October 2002, respectively. He also served as director of Pingxiang Iron & Steel Co., Limited from July 2003 to December 2012. From March 2002 to April 2004, Mr. Li served as the chairman of Fujian Dongbai (Group) Co. Ltd. Mr. Li graduated from Peking University with a Bachelor’s degree and a Master’s degree in Economics.

Key Employees

The following table identifies the senior management of Antay Pacha, and his age and position:


Name

 

Age

 

Position

 

 

 

 

 

Wang Yourong

 

53

 

Director and General Manager of Antay Pacha


Mr. Wang Yourong was appointed as the Director and General Manager of Antay Pacha in June 2016.  Mr. Wang has over 25 years’ experience in the copper smelting and processing industry.  Prior to joining Antay Pacha, he served as deputy general manager, research and development center manager, technical development manager, and copper strip branch manager of Anhui Xinke New Materials Co., Ltd., a listed company (Shanghai) engaged in copper processing in Shanghai, China. He also served as director of research institute, director of infrastructure department and irradiation crosslinking cable project preparatory office director for Anhui Wuhu Hengxin Copper Group Co., Ltd. Mr. Wang graduated from Huazhong University of Science and Technology with a Master’s degree in engineering in 1989, and holds a senior engineer accreditation.


Family Relationships


Except as set forth above, there are no family relationships between any of the individuals identified above. There are no arrangements or understandings between major shareholders, customers, suppliers or others pursuant to which any of the individuals identified above was selected as a director or member of senior management.



37



 


B.

Compensation


Executive Compensation


The following table sets forth the amount of compensation that was paid, earned and/or accrued and awards made under the Company’s equity compensation plan during the fiscal year ended December 31, 2016, to each of the individuals identified in Item 6.A. above.


Name

 

Compensation

(US$)

 

 

Number of
options

to purchase

Common Shares

 

 

Exercise price

(US$/ share)

 

 

Expiration

date

 

Directors and Officers

    

                         

  

  

                         

  

  

                         

  

  

                         

 

Li Feilie*

 

 

1

 

 

 

 

 

 

 

 

 

 

Wong Wah On Edward

 

 

1

 

 

 

 

 

 

 

 

 

 

Tam Cheuk Ho

 

 

1

 

 

 

 

 

 

 

 

 

 

Yue Ming Wai Bonaventure*

 

 

1

 

 

 

 

 

 

 

 

 

 

Lam Kwan Sing

 

 

7,692

 

 

 

 

 

 

 

 

 

 

Ng Kin Sing

 

 

7,692

 

 

 

 

 

 

 

 

 

 

Yip Wing Hang

 

 

7,692

 

 

 

 

 

 

 

 

 

 

Senior Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Xu Chengyin**

 

 

7, 920

 

 

 

 

 

 

 

 

 

 

Li Suming**

 

 

17,979

 

 

 

 

 

 

 

 

 

 

Qian Shengli**

 

 

7,776

 

 

 

 

 

 

 

 

 

 

Wang Yourong***

 

 

9,342

 

 

 

 

 

 

 

 

 

 

———————

*

On August 15, 2016, Mr. Li Feilie resigned as director and officer of the Company and Mr. Yue Ming Wai Bonaventure was appointed as director to fill the vacancy created by Mr. Li’s resignation. Mr. Li continues to serve as director of certain subsidiaries of the Company.

**

On January 8, 2016, Mr. Xu Chengyin resigned as general manager of Wuhu Feishang and Mr. Li Suming, the director and deputy general manager of Wuhu Feishang, was appointed as the general manager of Wuhu Feishang. On October 25, 2016, Mr. Li Suming resigned as the general manager of Wuhu Feishang and Mr. Qian Shengli was appointed as the general manager of Wuhu Feishang.

***

Mr. Wang Yourong was appointed as the director and general manager of Antay Pacha in June 2016.

The Company and its subsidiaries have not set aside or accrued any amounts to provide pension, retirement or similar benefits to the Company’s officers.

On April 2, 2015, we entered into service agreements with each of Mr. Yue Ming Wai Bonaventure (our Chief Financial Officer and a director), Mr. Tam Cheuk Ho (a director) and Mr. Wong Wah On Edward (our Chairman, Chief Executive Officer and President). Each of the agreements is for an initial term of one year and, thereafter, continues unless and until terminated by a party on not less than one months’ notice. Each of the agreements also provides for the payment to the individual of an annual fee of US$1.00, plus such equity awards as may from time to time be determined by our Compensation Committee.

We have also entered into an employment agreement with Mr. Wang Yourong for his services as director and general manager of Antay Pacha, in consideration of a salary of US$16,015 per year. The agreement is for a term of three years and may be renewed automatically for successive terms of one year.

There are no current contracts, agreements or understandings to increase the annual cash compensation payable to any of our executive directors. For each of the three years ended December 31, 2014, 2015 and 2016, no increases in cash compensation were determined by the Compensation Committee under the service agreements, and we paid or accrued nil, nil and nil, respectively, for cash compensation to our executive officers for their services as such.

The Company has no other employment contracts with any of its executive officers or directors and maintains no retirement, fringe benefit or similar plans for the benefit of its executive officers or directors. The Company may, however, enter into employment contracts with its officers and key employees, adopt various benefit plans and begin paying compensation to its officers and directors as it deems appropriate to attract and retain the services of such persons.



38



 


Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information relating to our outstanding stock option plans as of December 31, 2016:

Plan Category

 

Number of
Securities to be

issued upon exercise of

outstanding options,
warrants

and rights

(a)

 

Weighted-average
exercise price of
outstanding options,

warrants and rights

 

Number of
securities remaining
available for future

issuance under equity

compensation

plans (excluding
securities reflected
in column (a))

 

Equity compensation plans approved by security holders

 

 

 

 

 

 

 

 

 

 

 

 

 

2014 Equity Compensation Plan

 

 

 

 

 

N/A

 

 

 

4,982,183

 

 

Equity compensation plans not approved by security holders

 

 

 

 

 

N/A

 

 

 

 

 

Total

 

 

 

 

 

N/A

 

 

 

4,982,183

 

 


Stock Option Plans

The 2014 Equity Compensation Plan (the “2014 Plan”) was authorized by our Board of Directors on June 20, 2014 and was ratified and approved by members on July 21, 2014.

The purposes of the 2014 Plan are to:

·

Encourage ownership of our common stock by our officers, directors, employees and advisors;

·

Provide additional inventive for them to promote our success and our business; and

·

Encourage them to remain in our employ by providing them with the opportunity to benefit from any appreciation of our common shares.

The 2014 Plan is administered by the Board of Directors or a committee designated by the Board (the “Plan Committee”). The 2014 Plan allows the Plan Committee to grant various incentive equity awards not limited to stock options. The Company has reserved a number of common shares equal to 20% of the issued and outstanding common shares of the Company, from time-to-time, for issuance pursuant to options granted (“Plan Options”) or for restricted stock awarded (“Stock Grants”) under the 2014 Plan. Stock Appreciation Rights may be granted as a means of allowing participants to pay the exercise price of Plan Options. Stock Grants may be made upon such terms and conditions as the Plan Committee determines. Stock Grants may include deferred stock awards under which receipt of Stock Grants is deferred, with vesting to occur upon such terms and conditions as the Plan Committee determines.

The Plan Committee will determine, from time to time, those of our officers, directors, employees and consultants to whom Stock Grants and Plan Options will be granted, the terms and provisions of the respective Stock Grants and Plan Options, the dates such Plan Options will become exercisable, the number of shares subject to each Plan Option, the purchase price of such shares and the form of payment of such purchase price. Plan Options and Stock Grants will be awarded based upon the fair market value of our common shares at the time of the award. All questions relating to the administration of the 2014 Plan, and the interpretation of the provisions thereof are to be resolved at the sole discretion of the Plan Committee.

4,982,183 common shares have been reserved for issuance under the 2014 Plan. No awards have yet been made under the 2014 Plan. The 2014 Plan terminates on June 19, 2024.

C.

Board Practices

As provided by our Amended and Restated each director is to hold office for a three-year term expiring immediately following the annual meeting of shareholders held three years following the annual meeting at which he or she was elected.

At the annual meeting of shareholders in 2016, Messrs. Tam Cheuk Ho and Wong Wah On Edward were elected to serve as Class III directors until immediately following the annual meeting to be held in 2019 and until their successors have been duly elected and qualified. Messrs. Yue Ming Wai Bonaventure and Ng Kin Sing serve as Class I directors until immediately following the annual meeting to be held in 2017 and until their successors have been duly elected and qualified. Messrs. Lam Kwan Sing and Yip Wing Hang serve as Class II directors until immediately following the annual meeting to be held in 2018 and until their successors have been duly elected and qualified.



39



 


Messrs. Lam Kwan Sing, Yip Wing Hang and Ng Kin Sing is each an “independent” director as such term is used in applicable rules and regulations of the Securities and Exchange Commission and in NASDAQ Marketplace Rule 5605(a)(2). We are not required to maintain a Board of Directors consisting of a majority of independent directors based upon an exemption from NASDAQ requirements applicable to foreign private issuers whose home jurisdiction does not require the board of directors to consist of a majority of independent directors.

Our officers are elected annually at the Board of Directors meeting following each annual meeting of shareholders, and hold office until their respective successors are duly elected and qualified, subject to their earlier death, resignation or removal, and the terms of applicable employment agreements.

Commencing July 1, 2006, we pay our independent directors a monthly directors’ fee equal to HK$5,000 (US$641). We do not otherwise pay fees to directors for their attendance at meetings of the Board of Directors or of committees; however, we may adopt a policy of making such payments in the future. We will reimburse out-of-pocket expenses incurred by directors in attending board and committee meetings. During the fiscal year ended December 31, 2016, no long-term incentive plans or pension plans were in effect with respect to any of the Company’s executive officers or directors.

Audit Committee

Our Board of Directors has established an audit committee that operates pursuant to a written charter. Our audit committee, whose members currently consists of Yip Wing Hang, Lam Kwan Sing and Ng Kin Sing, is principally responsible for ensuring the accuracy and effectiveness of the annual audit of the financial statements. The duties of the audit committee include, but are not limited to:

·

appointing and supervising our independent registered public accounting firm;

·

assessing the organization and scope of the company’s interim audit function;

·

reviewing the scope of audits to be conducted, as well as the results thereof;

·

approving audit and non-audit services provided to us by our independent registered public accounting firm; and

·

overseeing our financial reporting activities, including our internal controls and procedures and the accounting standards and principles applied.

Each member of the Audit Committee is an independent director, as such term is used in applicable rules and regulations of the Securities and Exchange Commission and in NASDAQ Marketplace Rule 5605(a)(2).

Nominating and Corporate Governance Committee; Shareholder Nominees for Director

Our Board of Directors has established a Nominating and Corporate Governance Committee that operates pursuant to a written charter. The current members of the Nominating and Corporate Governance Committee are Ng Kin Sing, Lam Kwan Sing and Yip Wing Hang. Each member of the Nominating and Corporate Governance Committee is an independent director, as such term is used in NASDAQ Marketplace Rule 5605(a)(2).

The Nominating and Corporate Governance Committee is responsible for providing oversight on a broad range of issues surrounding the composition and operation of our Board of Directors. In particular, the responsibilities of the Nominating and Corporate Governance Committee include:

·

identifying individuals qualified to become members of the Board of Directors;

·

determining the slate of nominees to be recommended for election to the Board of Directors;

·

reviewing corporate governance principles applicable to us, including recommending corporate governance principles to the Board of Directors and administering our Code of Ethics;

·

assuring that at least one Audit Committee member is an “audit committee financial expert” within the meaning of regulatory requirements; and

·

carrying out such other duties and responsibilities as may be determined by the Board of Directors.

The Nominating and Corporate Governance Committee is required to meet at least once annually, and more frequently if the committee deems it to be appropriate. The committee may delegate authority to one or more members of the committee; provided that any decisions made pursuant to such delegated authority are presented to the full committee at its next scheduled meeting. Discussions pertaining to the nomination of directors are required to be held in executive session.



40



 


The Nominating and Corporate Governance Committee will consider candidates for directors proposed by shareholders, although no formal procedures for submitting the names of candidates for inclusion on management’s slate of director nominees have been adopted. Until otherwise determined by the Nominating and Corporate Governance Committee, a member who wishes to submit the name of a candidate to be considered for inclusion on management’s slate of nominees at the next annual meeting of shareholders must notify our Corporate Secretary, in writing, no later than June 30 of the year in question of its desire to submit the name of a director nominee for consideration. The written notice must include information about each proposed nominee, including name, age, business address, principal occupation, telephone number, shares beneficially owned and a statement describing why inclusion of the candidate would be in our best interests. The notice must also include the proposing member’s name and address, as well as the number of shares beneficially owned. A statement from the candidate must also be furnished, indicating the candidate’s desire and ability to serve as a director. Adherence to these procedures is a prerequisite to the board’s consideration of the shareholder’s candidate. Once a candidate has been identified, the Nominating and Corporate Governance Committee reviews the individual’s experience and background, and may discuss the proposed nominee with the source of the recommendation. If the Nominating and Corporate Governance Committee believes it to be appropriate, committee members may meet with the proposed nominee before making a final determination whether to include the proposed nominee as a member of management’s slate of director nominees to be submitted for election to the board.

Compensation Committee

Our Board of Directors has established a Compensation Committee that operates pursuant to a written charter. The current members of the Compensation Committee are Ng Kin Sing, Lam Kwan Sing and Yip Wing Hang. Each member of the Compensation Committee is an independent director, as such term is used in NASDAQ Marketplace Rule 5605(a)(2).

The Compensation Committee is responsible for:

·

Formulating corporate goals and objectives relevant to compensation payable to the CEO and other executive officers;

·

Evaluating the performance of the CEO and other executive officers in light of these goals and objectives;

·

Recommending to the board for its adoption and approval, compensation payable to the CEO and other executive officers, including (a) annual base salary level, (b) annual incentive opportunity level, (c) long-term incentive opportunity level, (d) employment agreements, severance arrangements, and change in control agreement/provisions, in each case as, when and if appropriate, and (e) any special or supplemental benefits;

·

Administering and supervising the Company’s incentive compensation plans, including equity compensation plans;

·

Recommending to the board for its adoption and approval, awards to be made under the Company’s incentive compensation plans, including equity compensation plans; and

·

Generally supporting the Board of Directors in carrying out its overall responsibilities relating to executive compensation.

The Compensation Committee is required to meet at least once annually, and more frequently if the committee deems it to be appropriate. The committee may delegate authority to one or more members of the committee; provided that any decisions made pursuant to such delegated authority are promptly communicated to all other committee members.

NASDAQ Requirements

Our common shares are currently listed on the NASDAQ Capital Market and, for so long as our securities continue to be listed, we will remain subject to the rules and regulations established by NASDAQ Stock Market as being applicable to listed companies. NASDAQ has adopted, and from time-to-time adopts, amendments to its Marketplace Rule 5600 that imposes various corporate governance requirements on listed securities. Section (a)(3) of Marketplace Rule 5615 provides that foreign private issuers such as our company are required to comply with certain specific requirements of Marketplace Rule 5600, but, as to the balance of Marketplace Rule 5600, foreign private issuers are not required to comply if the laws of their home jurisdiction do not otherwise mandate compliance with the same or substantially similar requirement.

We currently comply with those specifically mandated provisions of Marketplace Rule 5600. In addition, we have elected to voluntarily comply with certain other requirements of Marketplace Rule 5600, notwithstanding that our home jurisdiction does not mandate compliance with the same or substantially similar requirements; although we may in the future determine to cease voluntary compliance with those provisions of Marketplace Rule 5600 that are not mandatory. However, we have elected not to comply with the following provisions of Marketplace Rule 5600, since the laws of the British Virgin Islands do not require compliance with the same or substantially similar requirements:

·

a majority of our directors are not independent as defined by NASDAQ rules (rather, one-half of the members of our Board of Directors are independent);

·

our independent directors do not hold regularly scheduled meetings in executive session (rather, all board members may attend all meetings of the Board of Directors);



41



 


·

the compensation of our executive officers is recommended but not determined by an independent committee of the board or by the independent members of the Board of Directors; and our CEO is not prevented from being present in the deliberations concerning his compensation;

·

related party transactions are not required to be reviewed and we are not required to solicit member approval of stock plans, including: those in which our officers or directors may participate; stock issuances that will result in a change in control; the issuance of our stock in related party acquisitions or other acquisitions in which we may issue 20% or more of our outstanding shares; or, below market issuances of 20% or more of our outstanding shares to any person; and

·

we are not required to hold an in-person annual meeting to elect directors and transact other business customarily conducted at an annual meeting (rather, we complete these actions by written consent of holders of a majority of our voting securities).

We may in the future determine to voluntarily comply with one or more of the foregoing provisions of Marketplace Rule 5600.

D.

Employees

As of December 31, 2016 (a) mining operations employed 65 persons on a full-time basis, (b) the corporate segment employed three persons on a full-time basis, and (c) copper smelting operations employed 22 persons on a full-time basis. The Company believes that its relations with employees are generally good.

The following table sets out the number of employees (excluding the discontinued coal mine segment) as of December 31, 2016, including their principal category of activity and geographic location.

 

 

 

 

Years Ended December 31,

 

 

 

 

 

2015

 

2016

 

 

 

 

 

 

 

 

 

 

Hong Kong

 

Accounting, administration and management

 

3

 

 

3

 

 

 

 

 

3

 

 

3

 

 

 

 

 

 

 

 

 

 

The PRC*

 

Accounting, administration and management

 

18

 

 

20

 

 

 

Sales and quality inspection

 

5

 

 

3

 

 

 

Purchasing and supplies

 

8

 

 

2

 

 

 

Production

 

76

 

 

34

 

 

 

Cashier

 

1

 

 

1

 

 

 

Others

 

13

 

 

5

 

 

 

 

 

121

 

 

65

 

 

 

 

 

 

 

 

 

 

Bolivia

 

Accounting, administration and management

 

5

 

 

5

 

 

 

Purchasing and supplies

 

1

 

 

1

 

 

 

Production

 

10

 

 

7

 

 

 

Cashier

 

1

 

 

1

 

 

 

Others

 

11

 

 

8

 

 

 

 

 

28

 

 

22

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

152

 

 

90

 

———————

*  As discussed elsewhere in this Annual Report, effective December 27, 2015, the Company suspended operations of its PRC metals mining business and, effective March 3, 2017, the Company disposed of its PRC metals mining operations, including its employees. As a result, effective upon such sale, the Company ceased to employ the 65 persons reflected as being employed in PRC operations. As of the date of this Annual Report, the Company employees a total of 27 persons, consisting of five persons by the corporate segment (three in Hong Kong and two in the PRC) and 22 persons by copper smelting operations (in Bolivia).



42



 


E.

Share Ownership

The following table sets forth, as of June 15, 2017, the share ownership of the Company’s common shares by each of our directors, executive officers and key employees.

As of June 15, 2017, there were 24,910,916 common shares issued and outstanding. Unless otherwise indicated, each person has sole investment and voting power with respect to all shares shown as beneficially owned. The term “beneficial owner” of securities refers to any person who, even if not the record owner of the securities, has or shares the underlying benefits of ownership. These benefits include the power to direct the voting or the disposition of the securities or to receive the economic benefit of ownership of the securities. A person also is considered to be the “beneficial owner” of securities that the person has the right to acquire within 60 days by option or other agreement. Beneficial owners include persons who hold their securities through one or more trustees, brokers, agents, legal representatives or other intermediaries, or through companies in which they have a “controlling interest”, which means the direct or indirect power to direct the management and policies of the entity. The Company’s directors and executive officers do not have different voting rights than other shareholders of the Company.

Name of Beneficial Owner

 

Amount and Nature of
Beneficial Ownership

 

Percent of Class

 

 

 

 

 

 

 

 

Li Feilie

 

 

14,780,593

(1)

 

 

59.33%

 

 

Wong Wah On Edward

 

 

400,000

 

 

 

  1.61%

 

 

Tam Cheuk Ho

 

 

281,926

 

 

 

  1.13%

 

 

Yue Ming Wai Bonaventure

 

 

 

 

 

 

 

Lam Kwan Sing

 

 

 

 

 

 

 

Ng Kin Sing

 

 

 

 

 

 

 

Yip Wing Hang

 

 

 

 

 

 

 

Wang Yourong

 

 

 

 

 

 

 

Officers and directors as a group (8 persons)

 

 

15,462,519

 

 

 

62.07%

 

 

———————

(1)

Consists of (a) 14,480,593 outstanding common shares held in the name of Feishang Group, a British Virgin Islands corporation that is wholly owned by Mr. Li, and (b) 300,000 outstanding common shares held by Mr. Li.


ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.

Major Shareholders

Major Shareholders

The following table sets forth, as of June 15, 2017, to the knowledge of management, the share ownership of each person who is the beneficial owner of more than 5% of our outstanding common shares.

As of June 15, 2017, there were 24,910,916 common shares issued and outstanding. Unless otherwise indicated, each person has sole investment and voting power with respect to all shares shown as beneficially owned. The term “beneficial owner” of securities refers to any person who, even if not the record owner of the securities, has or shares the underlying benefits of ownership. These benefits include the power to direct the voting or the disposition of the securities or to receive the economic benefit of ownership of the securities. A person also is considered to be the “beneficial owner” of securities that the person has the right to acquire within 60 days by option or other agreement. Beneficial owners include persons who hold their securities through one or more trustees, brokers, agents, legal representatives or other intermediaries, or through companies in which they have a “controlling interest”, which means the direct or indirect power to direct the management and policies of the entity. The Company’s major shareholders do not have different voting rights than other shareholders of the Company.


Name of Beneficial Owner

 

Amount and Nature of
Beneficial Ownership

 

Percent of Class

 

 

 

 

 

 

 

 

Li Feilie

 

 

14,780,593

(1)

 

 

59.33%

 

 

———————

(1)

Consists of (a) 14,480,593 outstanding common shares held in the name of Feishang Group, a British Virgin Islands corporation that is wholly owned by Mr. Li, and (b) 300,000 outstanding common shares held by Mr. Li.



43



 


Significant Changes in Ownership

The Company was advised that in December 2014, Rosetta Stone Capital Limited, whose 2,250,000 shares then represented approximately 9.03% of the Company’s outstanding shares, disposed of its shares to two unrelated third parties. There have been no significant changes in the percentage ownership held by any major shareholder during the past three years.

Geographic Breakdown of Shareholders

Based upon a review of our shareholder records as of December 31, 2016, on that date our common shares were held of record by approximately 173 persons, 150 of whom, holding approximately 28.9% of our outstanding common shares on that date, were located in the United States (host country). Shares registered in the name(s) of intermediaries were assumed to be held by residents of the same country in which the intermediary was located.

Control

To our knowledge, (a) there are no arrangements the operation of which may, at a subsequent date, result in a change in control of the Company and (b) except as otherwise disclosed in this Annual Report, we are not directly or indirectly owned or controlled by any other corporation, by any foreign government or by any other natural or legal person, severally or jointly.

B.

Related Party Transactions

Commercial Transactions with Related Companies

Commercial transactions with related companies are summarized as follows:

 

 

Years Ended December 31,

 

 

 

2014

 

2015

 

2016

 

 

 

CNY’000

 

CNY’000

 

CNY’000

 

CHNR’s payment of its share of office rental, rates and others to Anka (1)

 

920

 

 

918

 

 

953

 

Purchase of raw ore from Jacha Uru (2)

 

 

 

11

 

 

20

 

———————

(1)

On September 1, 2013, the Company signed an office sharing agreement with Anka, a private Hong Kong company that is owned by certain Directors of CHNR. Pursuant to the agreement, the Company shared 119 square meters out of the total of 368 square meters of the office premises. On April 1, 2017, the Company signed an office sharing agreement with Anka which superseded all previously signed agreements between the parties, pursuant to which the Company shares 184 square meters of the total area of the office premises. The agreement also provides that the Company shares certain costs and expenses in connection with their use of the office, in addition to some of the accounting and secretarial services and day-to-day office administration services provided by Anka.

(2)

In 2015 and 2016, Antay Pacha purchased copper ore from Jacha Uru, a copper mine located in Bolivia and controlled by Feishang Hesheng.


Balances with Related Parties

 

 

 

 

As of December 31,

 

 

 

2014

 

2015

 

2016

 

 

 

CNY’000

 

CNY’000

 

CNY’000

 

Payables to related parties

 

 

 

 

 

 

 

 

 

Jacha Uru (1)

 

 

 

2,764

 

 

1,298

 

Feishang Enterprise (2)

 

 

 

3,932

 

 

7,832

 

Feishang Hesheng (3)

 

 

 

59,275

 

 

11,877

 

Feishang Group (4)

 

15,374

 

 

11,752

 

 

12,565

 

———————

Feishang Enterprise, Feishang Group, Feishang Hesheng and Jacha Uru are entities controlled by Mr. Li Feilie, who is the beneficial owner of the Company.

(1)

Payable to Jacha Uru for expenses paid on behalf of Antay Pacha and the purchase of copper ores from Jacha Uru. The balance is repayable when funds are available.

(2)

Payable to Feishang Enterprise by Feishang Management and Wuhu Mining for the net amount of loans from Feishang Enterprise. The balance is unsecured and interest-free. The balance is repayable when funds are available.



44



 


(3)

Payable to Feishang Hesheng for the acquisition of Double Grow as well as the assumption of indebtness due to Feishang Hesheng by Double Grow. The balance is unsecured and interest-free. The balance is repayable when funds are available.

(4)

Payable to Feishang Group for the acquisition of Feishang Anthracite. The balance is unsecured and interest-free. The balance is repayable when funds are available.

C.

Interests of Experts and Counsel

No disclosure is required in response to this Item.

ITEM 8.

FINANCIAL INFORMATION

A.

Consolidated Statements and Other Financial Information

The Company's Consolidated Financial Statements for the fiscal years ended December 31, 2014, 2015 and 2016 are included herewith as Appendix A and are incorporated herein by reference.

We have no direct business operations, other than through the ownership of our subsidiaries. Prior to December 31, 2013, we had not paid any dividends on our common shares. On December 31, 2013, the Board of Directors approved a conditional special interim dividend to the shareholders of CHNR satisfied by way of a distribution in specie of the entire issued share capital of Feishang Anthracite to all shareholders of CHNR in proportion to their respective shareholdings in CHNR on the Distribution Record Date. Pursuant to the Distribution, each shareholder of CHNR became entitled to five shares of Feishang Anthracite for every share of CHNR held on the Distribution Record Date. After the completion of the Distribution, CHNR no longer holds any shares in Feishang Anthracite.

See Item 4.A. for the details of the Distribution and Spin-Off.

Should we, as a holding company, decide in the future to pay any additional dividends, they will be paid at the discretion of the Company’s Board of Directors and will be dependent upon distributions, if any, made by its subsidiaries, and on the Company’s results of operations, its financial condition and other factors deemed relevant by the Board of Directors. In addition, our operating subsidiaries are subject to restrictions on their ability to make distributions to us, including as a result of restrictions imposed under PRC and Bolivian laws.

See Item 3.A. for the details of reserve allocation of PRC’s subsidiaries.

There are no legal or arbitration proceedings (including governmental proceedings pending or known to be contemplated), including those relating to bankruptcy, receivership or similar proceedings and those involving any third party, which may have, or have had in the recent past, significant effects on the Company’s financial position or profitability. Moreover, there are no material proceedings in which any director, any member of senior management, or any of our affiliates is either a party adverse to us or our subsidiaries or has a material interest adverse to us or our subsidiaries.

B.

Significant Changes

There have been no significant changes that have occurred since the date of the annual financial statements included in this Annual Report.


ITEM 9.

THE OFFER AND LISTING

A.

Offer and Listing Details

The following table sets forth the annual high and low last trade prices of our common shares as reported by The NASDAQ Stock Market for each of the five preceding fiscal years. The prices are inter-dealer prices, without retail markup, markdown or commission.

Period

 

High

 

Low

 

 

 

 

 

 

 

Fiscal Year ended:

 

 

 

 

 

 

December 31, 2016

 

$

4.82

 

$

0.75

December 31, 2015

 

$

2.77

 

$

1.26

December 31, 2014

 

$

10.80

 

$

1.89

December 31, 2013

 

$

6.18

 

$

3.15

December 31, 2012

 

$

9.06

 

$

3.61




45



 


The following table sets forth the high and low last trade prices of our common shares as reported by The NASDAQ Stock Market for each fiscal quarter of 2015 and 2016. The prices are inter-dealer prices, without retail markup, markdown or commission.

Period

 

High

 

Low

 

 

 

 

 

 

 

2016 Fiscal Year, quarter ended:

 

 

 

 

 

 

March 31, 2016

 

$

2.58

 

$

0.75

June 30, 2016

 

$

1.86

 

$

1.28

September 30, 2016

 

$

2.54

 

$

1.21

December 31, 2016

 

$

4.82

 

$

1.50

 

 

 

 

 

 

 

2015 Fiscal Year, quarter ended:

 

 

 

 

 

 

March 31, 2015

 

$

2.77

 

$

1.55

June 30, 2015

 

$

2.61

 

$

1.60

September 30, 2015

 

$

2.26

 

$

1.26

December 31, 2015

 

$

2.34

 

$

1.27


The following table sets forth the monthly high and low last trade prices of our common shares as reported by The NASDAQ Stock Market for each month during the six months preceding the date of this Annual Report. The prices are inter-dealer prices, without retail markup, markdown or commission, and do not necessarily reflect actual transactions.


Period

 

High

 

Low

 

 

 

 

 

 

 

Month Ended:

 

 

 

 

 

 

May 31, 2017

 

$

2.39

 

$

2.08

April 30, 2017

 

$

2.53

 

$

2.17

March 31, 2017

 

$

2.23

 

$

1.95

February 28, 2017

 

$

2.53

 

$

2.08

January 31, 2017

 

$

3.05

 

$

2.27

December 31, 2016

 

$

2.70

 

$

2.06


B.

Plan of Distribution

No disclosure is required in response to this Item.

C.

Markets

Our common shares have been listed on the NASDAQ Capital Market since November 22, 2004, under the symbol “CHNR”. From August 7, 1995 until November 22, 2004, our common stock was listed on the NASDAQ Small Cap market under the symbol “CHRB”.

D.

Selling Shareholders

No disclosure is required in response to this Item.

E.

Dilution

No disclosure is required in response to this Item.

F.

Expenses of the Issue

No disclosure is required in response to this Item.

ITEM 10.

ADDITIONAL INFORMATION

A.

Share Capital

No disclosure is required in response to this Item.



46



 


B.

Amended and Restated Memorandum and Articles of Association

Charter

Our charter documents consist of our Amended and Restated Memorandum of Association (“Memorandum of Association”) and our Amended and Restated Articles of Association (“Articles of Association”).

The Memorandum of Association loosely resembles the Articles or Certificate of Incorporation of a Untied States corporation, and the Articles of Association loosely resembles the bylaws of a United States corporation. A brief description of our Memorandum of Association and Articles of Association follows, including a summary of material differences between the corporate laws of the United States and those of the British Virgin Islands. This description and summary does not purport to be complete and does not address all differences between United States and British Virgin Islands corporate laws. Copies of our Memorandum of Association and Articles of Association have been incorporated by reference as exhibits to this Annual Report and readers are urged to review these exhibits in their entirety for a complete understanding of the provisions of our charter documents.

Memorandum of Association

Corporate Powers

We have been registered in the British Virgin Islands since December 14, 1993, with company number 102930. Clause 46 of our Memorandum of Association states that the objects for which we are established are unrestricted and we shall have full power and authority to carry out any object which is not prohibited by any laws in force in the British Virgin Islands.

Authorized Shares

We are authorized to issue a maximum of 210 million shares of no par value, of which, 200 million shall be common shares and 10 million shall be preferred shares. The directors of the Company or our shareholders may increase or decrease the maximum number of authorized shares by amending the Memorandum of Association as provided by law.

Each common share is entitled to one vote on each matter submitted to a vote of shareholders. Common shares may be redeemed by the Company for fair value. Common shares shall be entitled to receive such dividends and distributions as may be authorized by the directors. Subject to the rights of holders of other classes of shares, the directors may declare and pay dividends on the common shares. Holders of common shares shall be entitled to share in the assets of the Company available for distribution upon liquidation. Preferred shares shall carry such designations, powers, preferences and rights, qualifications, limitations and restrictions as may be determined by the directors at the time of issuance.

In accordance with our Memorandum of Association, our Board of Directors has designated a series of preferred shares, consisting of 320,000 shares and designated Series B preferred shares. Series B preferred shares are entitled to one vote for each share, shall be entitled to vote on each matter that is submitted for a vote of common shareholders and shall be aggregated with outstanding common shares for all voting purposes. Series B preferred shares have no preemptive or other subscription rights and are not subject to future calls or assessments. There are no redemption or sinking fund provisions applicable to the Series B preferred shares and holders thereof have no rights whatsoever to dividends or to distributions upon our liquidation. No Series B preferred shares are outstanding.

Amendments to Memorandum and Articles of Association

Subject to the laws of the British Virgin Islands and certain limited exceptions contained in the Memorandum of Association, the Memorandum of Association and the Articles of Association may each be amended by a majority vote of members or by the directors.

Articles of Association

Issuance of Shares

The unissued shares of the Company shall be issued at the discretion of the directors, who may determine whether to issue shares, grant options over or otherwise dispose of them, at such times and for such consideration (which may not be less than par value (if any) of the shares) as the directors determine. Consideration may take any form acceptable to the directors, including money, promissory note, service rendered or services to be rendered; provided that in the case of consideration other than money, the directors must adopt a resolution stating (a) the amount to be credited for issuance of the shares, (b) a reasonable determination of the present cash value of the non-monetary consideration and (c) that, in their opinion, the present cash value of the non-monetary consideration is not less the amount to be credited for the share issuance.



47



 


Redemption of Shares

The Company may purchase, redeem or acquire its own shares for such consideration as may be determined by the directors, and such shares may, at the direction of the directors, be cancelled or held as treasury shares; provided, however, that the Company may not purchase, redeem or acquire its shares unless, immediately following the purchase, redemption or acquisition (a) the value of the Company’s assets exceeds its liabilities and (b) the Company is able to pay its debts as they become due.

Meetings of Shareholders

The directors may convene meetings of our shareholders at such times and in such manner and places as the directors consider necessary or desirable. The directors shall convene such a meeting upon the written request of shareholders holding 30 percent or more of our outstanding voting shares. At least seven days’ notice of the meeting shall be given to the shareholders whose names appear on the share register. A majority of our outstanding shares entitled to vote must be present at a meeting of shareholders, in person or by proxy, in order to constitute a quorum and the affirmative vote of a majority of those present and entitled to vote shall be required in order to approve action by shareholders. However, in the event a meeting of shareholders is adjourned due to the absence of a quorum, the minimum number of shares that must be present in order to constitute a quorum shall be reduced to one-third. Our Articles of Association provides that any action that may be taken at a meeting of shareholders may be taken without a meeting if the action is approved by a written consent of shareholders.

Directors

Our Articles of Association provides that our Board of Directors shall consist of not less than three nor more than 25 directors; and directors, solely for purposes of determining the term for which they will serve, are classified as Class I, Class II and Class III directors, with approximately one-third of the total number of directors being allocated to each Class. Each director is to hold office for a three-year term expiring immediately following the annual meeting of shareholders held three years following the annual meeting at which he or she was elected. Directors may be removed by the shareholders, with or without cause, and by the directors, only with cause.

With the prior or subsequent approval by a resolution of shareholders, the directors may, by a resolution of directors, fix the emoluments of directors with respect to services to be rendered in any capacity to us. At the annual meeting of shareholders held in 2008, the shareholders adopted resolutions providing that (a) all emoluments to directors previously fixed by the Board of Directors are approved and ratified and (b) the Board of Directors is empowered and authorized to fix all future emoluments to directors, for their services in all capacities to the Company, without further approval or ratification by shareholders.

The directors may, by a resolution of directors, exercise all the powers of the Company to borrow money. There is no age limit requirement for retirement or non-retirement of directors. A director shall not require a share qualification. Directors may be natural persons who have attained the age of 18 years and are not undischarged bankrupts; or companies, in which event the company may designate a person as its representative as director.

A director may, from time to time, appoint (and revoke the appointment of) another director or another person who is not a director, but who is not disqualified from serving as a director, to be his or her alternate to exercise his or her powers and discharge his or her responsibilities. In addition, in the event of resignation, a director may appoint his or her successor.

Directors are not disqualified from entering into contracts with the Company, and no such contract shall be void or require the interested director to account for any profit under any such contract, provided that the fact of the director’s interest in the transaction is disclosed to the board. A director who is interested in a contract with the Company may, nevertheless, attend meetings of the board at which the interested transaction is discussed and/or approved, be counted towards a quorum at any such meeting and vote in favor of such transaction.

At least one-half the number of directors must be present for a duly constituted meeting. Action of directors shall require the affirmative vote of a majority of the directors present in person or by alternate and entitled to vote on the resolution. Directors may act by written consent in lieu of meeting provided that such consent is received from all of the directors. Subject to certain limitations set forth in the Articles of Association, directors may appoint committees and agents. Directors do not have the authority to appoint new auditors – such appointment must be made by the shareholders.



48



 


Indemnification

The Company shall indemnify every officer and director of the Company against any liability, action, proceeding, claim, demand, costs, damages or expenses incurred as a result of any act or failure to act in carrying out their functions, except those incurred by reason of their own fraud or wilful default. No indemnified person shall be liable to the Company for any loss or damage except due to the fraud or wilful default of the indemnified person. Fraud or wilful default may only be found to exist by a court of competent jurisdiction. The Company must advance reasonable attorneys fees and other expenses to an indemnified person provided that the indemnified person executes an agreement to reimburse the Company if a court of competent jurisdiction determines that indemnification was not available under the circumstances.

Dividends and Distribution

The directors may authorize the payment of dividends or other distributions to shareholders, if, the directors are satisfied, on reasonable grounds that, immediately following the dividend or other distribution (a) the value of the Company’s assets exceeds its liabilities and (b) the Company is able to pay its debts as they become due. Distributions, including dividends, may be declared and paid in cash, or in specie, in shares or other assets.

Restrictions on Rights to Own Securities

There are no limitations on the rights to own our securities.

Change in Control Provisions

There are no provisions of our Memorandum of Association or Articles of Association that would have an effect of delaying, deferring or preventing a change in our control and that would operate only with respect to a merger, acquisition or corporate restructuring involving us.

Disclosure of Share Ownership

There are no provisions of our Memorandum of Association or Articles of Association governing the ownership threshold above which shareholder ownership must be disclosed.

Changes in Capital

Requirements to effect changes in capital are not more stringent than is required by law.

Arbitration

Our Articles of Association provides that any differences between us and our shareholders or their legal representatives relating to the intent, construction, incidences or consequences of our Articles of Association or the British Virgin Islands Business Companies Act, including any breach or alleged breach of our Articles of Association or the Business Companies Act, or relating to our affairs shall be resolved by arbitration before two arbitrators (unless the parties agree to arbitrate before one arbitrator), who shall jointly appoint an umpire.

Discussion of Law

Under the laws of most jurisdictions in the United States, majority and controlling shareholders generally have certain fiduciary responsibilities to the minority shareholders. Shareholder action must be taken in good faith and actions by controlling shareholders which are obviously unreasonable may be declared null and void. British Virgin Islands law protecting the interests of minority shareholders may not be as protective in all circumstances as the law protecting minority shareholders under most jurisdictions in the United States.

While British Virgin Islands law does permit a shareholder of a British Virgin Islands company to sue its directors derivatively, that is, in the name of, and for the benefit of, our Company and to sue a company and its directors for his benefit and for the benefit of others similarly situated, the circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect of any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a company organized in the United States.



49



 


Our directors have the power to take certain actions without shareholder approval, including an amendment of our Memorandum of Association or Articles of Association (unless such amendment varies the rights attached to shares) or an increase or decrease of the maximum number of shares that we are authorized to issue, which would require shareholder approval under the laws of most jurisdictions in the United States. In addition, the directors of a British Virgin Islands company, subject in certain cases to court approval but without shareholder approval, may, among other things, implement a reorganization, certain mergers or consolidations with a subsidiary, the sale, transfer, exchange or disposition of any assets, property, part of the business, or securities of the company, or any combination (provided the assets do not represent more than 50% of the total assets of the company and the sale is not outside of the usual or ordinary course of the company’s business), if they determine it is in the best interests of the company. Our ability to amend our Memorandum of Association and Articles of Association without shareholder approval could have the effect of delaying, deterring or preventing a change in our control without any further action by the shareholders, including a tender offer to purchase our common shares at a premium over then current market prices.

The Business Companies Act of the British Virgin Islands permits the creation in our Memorandum and Articles of Association of staggered terms of directors, cumulative voting, shareholder approval of corporate matters by written consent, and the issuance of preferred shares. Currently, our Memorandum and Articles of Association provide for (a) shareholder approval of corporate matters by majority written consent, (b) staggered terms of directors and (c) the issuance of preferred shares.

As in most United States’ jurisdictions, the Board of Directors of a British Virgin Islands company is charged with the management of the affairs of the company. In most jurisdictions in the United States, directors owe a fiduciary duty to the corporation and its shareholders, including a duty of care, under which directors must properly apprise themselves of all reasonably available information, and a duty of loyalty, under which they must protect the interests of the corporation and refrain from conduct that injures the corporation or its shareholders or that deprives the corporation or its shareholders of any profit or advantage. Many US jurisdictions have enacted various statutory provisions which permit the monetary liability of directors to be eliminated or limited.

Under British Virgin Islands law, liability of a corporate director to the corporation is primarily limited to cases of willful malfeasance in the performance of his duties or to cases where the director has not acted honestly and in good faith and with a view to the best interests of the company. However, under our Memorandum of Association, we are authorized to indemnify any director or officer who is made or threatened to be made a party to a legal or administrative proceeding by virtue of being one of our directors or officers, provided such person acted honestly and in good faith and with a view to our best interests and, in the case of a criminal proceeding, such person had no reasonable cause to believe that his conduct was unlawful. Our Memorandum of Association also enable us to indemnify any director or officer who was successful in such a proceeding against expenses and judgments, fines and amounts paid in settlement and reasonably incurred in connection with the proceeding.

Unlike most corporate laws in the United States, directors of a British Virgin Islands company may be companies. Moreover, any director may appoint an alternate to attend meetings and vote in the place and stead of the director appointing the alternate. It is unclear of the effect of such an appointment on the fiduciary obligations of the director making the appointment.

The foregoing discussion of British Virgin Islands law does not purport to present a complete description of the differences between British Virgin Islands law and the corporate laws of the several United States.

C.

Material Contracts

Other than contracts entered into the ordinary course of business, during the two preceding fiscal years the Company has entered into the following material contracts (which are included as exhibits to this Annual Report):

·

Agreement dated December 23, 2016 by and between the Company and Feishang Hesheng Investment Limited.

·

Deed of Assignment dated December 23, 2016 by and among the Company, Double Grow International Limited and Feishang Hesheng Investment Limited.

·

Equity Transfer Agreement dated February 24, 2017 by and among Wuhu City Feishang Industrial Development Co., Ltd., Feishang Mining Holdings Limited, Mr. Shen Yandi and Wuhu Feishang Mining Development Co., Ltd.




50



 


D.

Exchange Controls

There are no material British Virgin Islands laws, decrees, regulations or other legislation that impose foreign exchange controls on us or that affect our payment of dividends, interest or other payments to non-resident holders of our shares. British Virgin Islands law and our Memorandum of Association and Articles of Association impose no limitations on the right of non-resident or foreign owners to hold or vote our common shares. However, we operate through subsidiaries located in the PRC and Bolivia, and the payment of dividends by PRC and Bolivian companies are subject to certain restrictions imposed under PRC and Bolivian law.

The principal regulation governing foreign currency exchange in the PRC is the Foreign Currency Administration Rules (1996) as amended. Conversion of Renminbi is strictly regulated by the PRC Government. Under PRC foreign exchange rules and regulations, payment of routine transactions under current accounts, including trade and service transactions and payment of dividends, may be made in foreign currencies without prior approval from the SAFE but are subject to procedural requirements. Strict foreign exchange control continues to apply to capital account transactions, such as direct investment, loans or investments in securities outside the PRC and capital contribution. These transactions must be approved by the SAFE.

Pursuant to the Foreign Currency Administration Rules, foreign-invested enterprises in the PRC may purchase foreign exchange without the approval of the SAFE for trade and service-related exchange transactions by providing commercial documents evidencing these transactions. They may also retain foreign exchange, subject to a cap approved by the SAFE, to satisfy foreign exchange liabilities or to pay dividends. However, the relevant PRC authorities may limit or eliminate the ability of foreign-invested enterprises to purchase and retain foreign currencies in the future.

The principal regulations governing distribution of dividends by foreign-invested companies include:

·

The Sino-foreign Equity Joint Venture Law (1979), as amended;

·

The Regulations of Implementation of the Sino-foreign Equity Joint Venture Law (1983) as amended;

·

The Foreign Investment Enterprise Law (1986) as amended; and

·

The Regulations of Implementation of the Foreign Investment Enterprise Law (1990) as amended.

Under these regulations, foreign-invested enterprises in the PRC may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned enterprises in the PRC are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds unless such reserve funds have reached 50% of their respective registered capital. These reserves are not distributable as cash dividends.

In addition, our wholly owned subsidiaries are required to allocate portions of their after-tax profits to their enterprise expansion funds and staff welfare and bonus funds at the discretion of their boards of directors. Allocations to these statutory reserves and funds can only be used for specific purposes and are not transferable to us in the forms of loans, advances or cash dividends.

The principal regulation governing foreign currency exchange in Bolivia is Law No. 516, the investment promotion law (Ley de Promoción de Inversiones, “LPI”) that was promulgated in April 2014. The LPI guarantees that if foreign investors fulfill tax and other obligations under Bolivian law, they may freely transfer abroad their net profits, the capital resulting from the liquidation of companies or from the sale of shares, dispute settlement awards, among other amounts, in freely convertible currency. Financial transfers to or out of Bolivia must be channeled through the Bolivian financial system, as well as registered with Bolivia’s Central Bank.

E.

Taxation

The following is a summary of anticipated material U.S. federal income and British Virgin Islands tax consequences of an investment in our common shares. The summary has been prepared based upon management’s understanding of applicable tax consequences, but has not been reviewed by counsel or other experts in U.S. or British Virgin Islands taxation. The summary does not address all possible tax consequences relating to an investment in our common shares and does not purport to deal with the tax consequences applicable to all categories of investors, some of which, such as dealers in securities, insurance companies and tax-exempt entities, may be subject to special rules. In particular, the discussion does not address the tax consequences under state, local and other non-U.S. and non-British Virgin Islands tax laws. Accordingly, each prospective investor should consult its own tax advisor regarding the particular tax consequences to it of an investment in the common shares. The discussion below is based upon laws and relevant interpretations in effect as of the date of this Annual Report, all of which are subject to change.



51



 


CHNR effected the Spin-Off by way of a distribution in specie of the entire issued share capital of Feishang Anthracite to the holders of the common shares of CHNR (the “Distribution”). It is not clear whether the Distribution should be treated as a tax-free spin-off under Section 355 of the Code or as a taxable distribution of property. If we are required to report the Distribution to the IRS, we intend to take the view that the Distribution will be treated as a taxable distribution. Under this treatment, for U.S. Federal income tax purposes, the Distribution should be a taxable event for holders of CHNR common shares on the Distribution Record Date. Accordingly, subject to the passive foreign investment company rules discussed below, a U.S. Holder:

·

should generally be treated as having received (at the time of receipt of the Feishang Anthracite ordinary shares) a taxable distribution in an amount equal to the fair market value of the Feishang Anthracite ordinary shares received in the Distribution,

·

should have a tax basis in its Feishang Anthracite ordinary shares equal to their fair market value on the date of the Distribution, and

·

should have a holding period in its Feishang Anthracite ordinary shares that will commence on the day after the date of the Distribution.

The amount distributed by CHNR to a U.S. Holder should be taxed as a “dividend” to the extent of such holder’s proportionate share of CHNR’s current and accumulated earnings and profits (if any), and should otherwise be (i) a tax-free return of capital to the extent of such holder’s adjusted tax basis in his or her CHNR common shares and (ii) thereafter as a capital gain. CHNR does not maintain calculations of its earnings and profits in accordance with U.S. Federal income tax principles; accordingly, holders should assume that the entire amount of the Distribution should be taxable as a dividend. CHNR intends to treat the distribution of Feishang Anthracite ordinary shares as a taxable dividend for U.S. Federal income tax purposes, and the remainder of the disclosure assumes such treatment.

The dividend amount generally will be treated as foreign source ordinary dividend income, and generally will be eligible for reduced rates of taxation applicable to qualified dividend income applicable to certain non-corporate U.S. Holders, but will not be eligible for the dividends received deduction allowed to corporations. The dividend will be includable in “net investment income” for purposes of the Medicare contribution tax applicable to certain non-corporate U.S. Holders.

United States Federal Income Taxation

The following discussion addresses only the material U.S. federal income tax consequences to a U.S. person, defined as a U.S. citizen or resident, a U.S. corporation, or an estate or trust subject to U.S. federal income tax on all of its income regardless of source, making an investment in the common shares. For taxable years beginning after December 31, 1996, a trust will be a U.S. person only if:

·

a court within the United States is able to exercise primary supervision over its administration; and

·

one or more United States persons have the authority to control all of its substantial decisions.

In addition, the following discussion does not address the tax consequences to a person who holds or will hold, directly or indirectly, 10% or more of our common shares, which we refer to as a “10% Shareholder”. Non-U.S. persons and 10% Shareholders are advised to consult their own tax advisors regarding the tax considerations incident to an investment in our common shares.

A U.S. investor receiving a distribution of our common shares will be required to include such distribution in gross income as a taxable dividend, to the extent of our current or accumulated earnings and profits as determined under U.S. federal income tax principles. Any distributions in excess of our earnings and profits will first be treated, for U.S. federal income tax purposes, as a nontaxable return of capital, to the extent of the U.S. investor’s adjusted tax basis in our common shares, and then as gain from the sale or exchange of a capital asset, provided that our common shares constitutes a capital asset in the hands of the U.S. investor. U.S. corporate shareholders will not be entitled to any deduction for distributions received as dividends on our common shares.

Gain or loss on the sale or exchange of our common shares will be treated as capital gain or loss if our common shares is held as a capital asset by the U.S. investor. Such capital gain or loss will be long-term capital gain or loss if the U.S. investor has held our common shares for more than one year at the time of the sale or exchange.



52



 


A holder of common shares may be subject to “backup withholding” at the rate of 31% with respect to dividends paid on our common shares if the dividends are paid by a paying agent, broker or other intermediary in the United States or by a U.S. broker or certain United States-related brokers to the holder outside the United States. In addition, the proceeds of the sale, exchange or redemption of common shares may be subject to backup withholding, if such proceeds are paid by a paying agent, broker or other intermediary in the United States.

Backup withholding may be avoided by the holder of common shares if such holder:

·

is a corporation or comes within other exempt categories; or

·

provides a correct taxpayer identification number, certifies that such holder is not subject to backup withholding and otherwise complies with the backup withholding rules.

In addition, holders of common shares who are not U.S. persons are generally exempt from backup withholding, although they may be required to comply with certification and identification procedures in order to prove their exemption.

Any amounts withheld under the backup withholding rules from a payment to a holder will be refunded or credited against the holder’s U.S. federal income tax liability, if any, provided that amount withheld is claimed as federal taxes withheld on the holder’s U.S. federal income tax return relating to the year in which the backup withholding occurred. A holder who is not otherwise required to file a U.S. income tax return must generally file a claim for refund or, in the case of non-U.S. holders, an income tax return in order to claim refunds of withheld amounts.

British Virgin Islands Taxation

Under the Business Companies Act of the British Virgin Islands as currently in effect, companies incorporated or registered under the Business Companies Act are exempt from income and corporate tax. In addition, the British Virgin Islands currently does not levy capital gains tax on companies incorporated or registered under the Business Companies Act.

A holder of our common shares who is not a resident of British Virgin Islands is exempt from British Virgin Islands income tax on dividends paid with respect to the common shares. In addition, the common shares are not subject to transfer taxes, stamp duties or similar charges for so long as we do not hold an interest in real estate in the British Virgin Islands.

There are no estate, gift or inheritance taxes levied by the British Virgin Islands on companies incorporated or registered under the Business Companies Act.

There is no income tax treaty or convention currently in effect between the United States and the British Virgin Islands that re applicable to any payments made by or to a company incorporated or registered under the Business Companies Act of the British Virgin Islands.

F.

Dividends and Paying Agents

No disclosure is required in response to this Item.

G.

Statement by Experts

No disclosure is required in response to this Item.

H.

Documents on Display

The documents concerning the Company that are referred to in this Annual Report may be inspected at the Company’s principal executive offices at Room 2205, 22/F, West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Sheung Wan, Hong Kong. Certain documents described in response to Item 19 of this Annual Report are filed with this Annual Report and others are incorporated by reference to documents previously filed by the Company with the United States Securities and Exchange Commission. The documents that are filed herewith or incorporated by reference can be viewed on the SEC’s website at www.sec.gov.

I.

Subsidiary Information

See Exhibit 8 for further information about our subsidiaries.



53



 


ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign currency exchange rate risk

Revenue and expenses of our PRC and Bolivian subsidiaries are denominated in Renminbi and Boliviano, respectively. The administrative expenses of the Company’s head office in Hong Kong are denominated either in United States dollars or Hong Kong dollars. As the reporting currency of the Company’s consolidated financial statements is Renminbi, the Company has material market risk with respect to currency fluctuation between Boliviano, Hong Kong dollars and United States dollars to Renminbi and translation difference may arise on consolidation. The Company may also suffer an exchange loss when it converts Renminbi to other currencies, such as Boliviano, Hong Kong dollars or United States dollars. If market conditions allow, the Company endeavors to match the currency used in operating/ investing activities with that used in financing activities. We have not engaged any foreign currency contract to hedge our potential foreign currency exchange exposure, if any.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. We are not currently exposed to interest rate risk as we do not have any outstanding interest-bearing financial instruments.

Commodity price risk

We are not currently exposed to commondity price risk.


ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

No disclosure is required in response to this Item.







54



 


PART II

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

There are no defaults, dividend arrearages and delinquencies or other information required to be disclosed in response to this Item.

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

There have been no modifications to the rights of security holders and there is no other information to disclose in response to this Item.

ITEM 15.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). As of December 31, 2016, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.

In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based upon that evaluation and subsequent evaluations conducted in connection with the audit of the Company’s consolidated financial statements for the year ended December 31, 2016, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commission’s rules and regulations.

Management’s Report on Internal Control over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Exchange Act defines internal control over financial reporting as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS issued by the IASB and includes those policies and procedures that:

·

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

·

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS issued by the International Accounting Standards Board, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

·

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.



55



 


All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016, excluding Double Grow and its subsidiaries, which were acquired in December 2016 and accounted for the acquisition as a combination of entities under common control since the Company and Double Grow were under the common control of Mr. Li Feilie. As such, the assets and liabilities of Double Grow have been accounted for at historical cost and the consolidated financial statements of the Group prior to acquisition have been restated to include the results of operations of Double Grow and its subsidiaries on a combined basis when the entities first came under the common control of Mr. Li Feilie. The total assets as of December 31, 2015 and the loss for the year ended December 31, 2015 of Double Grow and its subsidiaries accounts for 53.5% and 14.3% of the total assets and loss of CHNR, respectively. The total assets as of December 31, 2016 and the loss for the year ended December 31, 2016 of Double Grow and its subsidiaries accounts for 61.8% and 33.1% of the total assets and loss of CHNR, respectively. The exclusion of Double Grow and its subsidiaries from the scope of our assessment was due to the impracticality of conducting an assessment of the acquired business’s internal control over financial reporting during the period between the date the acquisition was consummated and the date of management’s assessment. See “Risk Factors” included elsewhere in this Annual Report. In making this assessment, we used the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organization of the Treadway Commission (“COSO”) (2013 framework) (the COSO criteria). Based on our evaluation and the COSO criteria, we determined that, as of December 31, 2016, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS.


Since the Company is not an accelerated filer, the auditor’s attestation report pursuant to SOX Section 404(b) is not required in this Annual Report.

Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting that occurred during the fiscal year 2016 and that has materially affected, or is reasonably likely to affect, the Company’s internal control over financial reporting.

ITEM 16.

[Reserved]

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

In general, an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K, is an individual member of the Audit Committee who:

·

understands generally accepted accounting principles and financial statements,

·

 is able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves,

·

has experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity to our financial statements,

·

understands internal controls over financial reporting, and

·

understands audit committee functions.

An “audit committee financial expert” may acquire the foregoing attributes through:

·

education and experience as a principal financial officer, principal accounting officer, controller, public accountant, auditor or person serving similar functions;

·

experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or person serving similar functions; experience overseeing or assessing the performance of companies or public accounts with respect to the preparation, auditing or evaluation of financial statements; or

·

other relevant experience.



56



 


Our Board of Directors has determined that Mr. Yip Wing Hang and Mr. Lam Kwan Sing are each an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K. Each of our “audit committee financial experts” is independent as that term is used in NASDAQ Marketplace Rule 5605(a)(2).

Item 16B.

CODE OF ETHICS

A Code of Ethics is a written standard designed to deter wrongdoing and to promote:

·

honest and ethical conduct,

·

full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements,

·

compliance with applicable laws, rules and regulations,

·

the prompt reporting violation of the code, and

·

accountability for adherence to the Code of Ethics.

We have adopted a Code of Ethics that is applicable to all of our employees, and also contains provisions that apply only to our Chief Executive Officer, principal financial and accounting officers and persons performing similar functions. A copy of our Code of Ethics is incorporated by reference as an exhibit to this Annual Report.

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table shows the fees that we paid for audit and other services provided by Ernst & Young Hua Ming LLP, our independent registered public accounting firm, for fiscal years 2015 and 2016.

 

Fiscal 2015

 

Fiscal 2016

 

 

 

 

 

 

 

 

Audit Fees

 

US$123,234

 

 

US$213,109

 

Audit-Related Fees

 

 

 

 

Tax Fees

 

 

 

 

All Other Fees

 

 

 

 

 

 

 

 

 

 

 

Total

 

US$123,234

 

 

US$213,109

 

 

Audit Fees —This category includes the audit of our annual financial statements and services that are normally provided by the independent auditors in connection with engagements for those fiscal years.

Audit-Related Fees — This category consists of assurance and related services by the independent auditors that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees”.

Tax Fees — This category consists of professional services rendered by the Company’s independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.

All Other Fees — This category consists of fees for other miscellaneous items.

The Audit Committee has adopted a procedure for pre-approval of all fees charged by the Company’s independent registered public accounting firm. Under the procedure, the Audit Committee approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the entire Committee, or, in the period between meetings, by a designated member of the Audit Committee. Any such approval by the designated member is disclosed to the entire Audit Committee at the next meeting. The audit fees paid to Ernst & Young Hua Ming LLP with respect to fiscal years 2015 and 2016 were approved by the Audit Committee.

ITEM 16D.

EXEMPTION FROM THE LISTING STANDARDS FOR THE AUDIT COMMITTEE

There have been no exemptions from listing standards required to be disclosed in response to this Item.

ITEM 16E.

PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

There have been no purchases of equity securities required to be disclosed in response to this Item.



57



 


ITEM 16F.

CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT

Information in response to this Item has been previously reported.

ITEM 16G.

CORPORATE GOVERNANCE

Our common shares are currently listed on the NASDAQ Capital Market and, for so long as our securities continue to be listed, we will remain subject to the rules and regulations established by the NASDAQ Stock Market that apply to listed companies. NASDAQ rules include various corporate governance requirements applicable to listed securities. While all NASDAQ-listed companies are subject to certain of these corporate governance requirements, foreign private issuers such as our company are exempt from other corporate governance requirements if the laws of their home jurisdiction do not otherwise require compliance. Since our home jurisdiction does not mandate compliance with some of these NASDAQ rules, we have opted out of compliance with them. A more detailed description of the NASDAQ requirements that we are not subject to is contained elsewhere in this Annual Report under Item 6.C – “Board Practices; NASDAQ Requirements”.

ITEM 16H.

MINE SAFETY DISCLOSURE

Not applicable.




58



 


PART III

ITEM 17.

FINANCIAL STATEMENTS

No disclosure is required in response to this Item.

ITEM 18.

FINANCIAL STATEMENTS

The following financial statements are filed as a part of this Form 20-F in Appendix A hereto:

Reports of Independent Registered Public Accounting Firm, together with the consolidated financial statements for the Company and subsidiaries, including:

a.

Consolidated statements of financial position as of January 1, 2015, December 31, 2015 and 2016

b.

Consolidated statements of profit or loss for the years ended December 31, 2014, 2015 and 2016

c.

Consolidated statements of comprehensive income for the years ended December 31, 2014, 2015 and 2016

d.

Consolidated statements of changes in equity for the years ended December 31, 2014, 2015 and 2016

e.

Consolidated statements of cash flows for the years ended December 31, 2014, 2015 and 2016

f.

Notes to consolidated financial statements.

ITEM 19.

EXHIBITS

The following Exhibits are filed as part of this Form 20-F:

Exhibit No.

 

Exhibit Description

 

 

 

1.1

 

Amended and Restated Memorandum and Articles of Association of the Registrant (included as Exhibit 99.1 to Form 6K filed January 29, 2014, and incorporated herein by reference).

1.2

 

Board of Directors Resolutions Designating Series B Preferred Stock and Establishing Rights, Preferences and Limitations (included as Exhibit 1.3 to Annual Report on Form 20-F for the fiscal year ended December 31, 2004, and incorporated herein by reference).

4.1

 

Acquisition Agreement dated January 24, 2006 by and between China Natural Resources, Inc., Feishang Mining Holdings Limited and Feishang Group Limited (included as Exhibit 10.1 to the Current Report on Form 6-K furnished January 25, 2006, and incorporated herein by reference).

4.2

 

Agreement for the Sale and Purchase of the Entire Issued Share Capital in Pineboom Investments Limited dated July 11, 2008 by and between Feishang Group Limited and China Natural Resources, Inc. (included as Exhibit 10.1 to the Current Report on Form 6-K furnished July 15, 2008, and incorporated herein by reference).

4.3

 

Agreement for the Sale and Purchase of the Entire Issued Share Capital in Newhold Investments Limited dated August 11, 2008 by and between Feishang Group Limited and China Natural Resources, Inc. (included as Exhibit 10.1 to the Current Report on Form 6-K furnished August 13, 2008, and incorporated herein by reference).

4.4

 

Letter Agreement dated January 12, 2009 by and between Feishang Group Limited and China Natural Resources, Inc. (included as Exhibit 10.2 to the Current Report on Form 6-K furnished January 20, 2009, and incorporated herein by reference).




















59



 



Exhibit No.

 

Exhibit Description

 

 

 

4.5

 

Letter Agreement dated July 10, 2009 by and between Feishang Group Limited and China Natural Resources, Inc. (included as Exhibit 10.2 to the Current Report on Form 6-K furnished July 16, 2009, and incorporated herein by reference).

4.6

 

Agreement for the Sale and Purchase of the Entire Issued Share Capital in Wealthy Year Limited dated April 30, 2010 by and between Feishang Group Limited and China Natural Resources, Inc. (included as Exhibit 4.1 to the Current Report on Form 6-K furnished May 11, 2010, and incorporated herein by reference).

4.7

 

2014 Equity Compensation Plan (included as Annex A of Exhibit 99.1 to the Current Report on Form 6-K furnished August 13, 2014, and incorporated herein by reference).

4.8

 

Service Agreement dated as of April 2, 2015 by and between the Company and Tam Cheuk Ho (included as Exhibit 99.1 to the Current Report on Form 6-K furnished April 6, 2015, and incorporated herein by reference).

4.9

 

Service Agreement dated as of April 2, 2015 by and between the Company and Wong Wah On Edward (included as Exhibit 99.2 to the Current Report on Form 6-K furnished April 6, 2015, and incorporated herein by reference).

4.10

 

Service Agreement dated as of April 2, 2015 by and between the Company and Yue Ming Wai Bonaventure (included as Exhibit 99.3 to the Current Report on Form 6-K furnished April 6, 2015, and incorporated herein by reference).

4.11

 

Sales and Purchase Master Contract dated January 1, 2015 by and between Fanchang County Jinfeng Mining Ltd. And Wuhu Feishang Mining Development Co., Ltd. (included as Exhibit 4.17 to the Annual Report on Form 20-F furnished April 28, 2016, and incorporated herein by reference).

4.12

 

Agreement dated December 23, 2016 by and between the Company and Feishang Hesheng Investment Limited (included as Exhibit 99.1 to the Current Report on Form 6-K furnished December 23, 2016, and incorporated herein by reference).

4.13

 

Deed of Assignment dated December 23, 2016 by and among the Company, Double Grow International Limited and Feishang Hesheng Investment Limited (included as Exhibit 99.2 to the Current Report on Form 6-K furnished December 23, 2016, and incorporated herein by reference).

4.14

 

Equity Transfer Agreement dated February 24, 2017 by and among Wuhu City Feishang Industrial Development Co., Ltd., Feishang Mining Holdings Limited, Mr. Shen Yandi and Wuhu Feishang Mining Development Co., Ltd. (English translation included as Exhibit 10.1 to the Current Report on Form 6-K furnished March 7, 2017, and incorporated herein by reference).

4.15

 

License Agreement dated April 1, 2017 by and between Anka Consultants Limited and China Natural Resources, Inc. (included herewith).

4.16

 

Lease Contract dated May 21, 2015 by and between the Autonomous Municipal Government of Uyuni and Planta Metalurgica Antay Pacha S.A. (included herewith).

4.17

 

Purchase and Sale Contract of Copper Mineral dated November 19, 2016 by and between Cooperativa Minera Estrella del Sur Ltda. and Planta Metalurgica Antay Pacha S.A. (included herewith).

4.18

 

Purchase and Sale Contract of Mineral dated March 22, 2017 by and between Minera DCH S.R.L. and Planta Metalurgica Antay Pacha S.A. (included herewith).

4.19

 

Employment Agreement dated as of June 1, 2016 by and between Planta Metalurgica Antay Pacha S.A. and Wang Yourong (included herewith).

6

 

Computation of Earnings Per Share for Fiscal Year ended December 31, 2016 (contained in Financial Statements included herewith).

7

 

Computation of Ratios for Fiscal Years ended December 31, 2014, 2015 and 2016 (included herewith).

8

 

Subsidiaries of the Registrant (included herewith).

11

 

Code of Ethics (included as Exhibit 14 to Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003, and incorporated herein by reference).

12.1

 

CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (included herewith).

12.2

 

CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (included herewith).

13.1

 

CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (included herewith).

13.2

 

CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (included herewith).

99.1

 

Press Release dated June 19, 2017 (included herewith).

 

 

 






60



 


SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

 

CHINA NATURAL RESOURCES, INC.

 

 

 

 

Date: June 19, 2017

By:

/s/ WONG WAH ON EDWARD

 

 

 

Wong Wah On Edward, CEO

 






61



 


APPENDIX A


CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firms, together with the consolidated financial statements for the Company and subsidiaries, including:

a.

Consolidated statements of financial position as of January 1, 2015, December 31, 2015 and 2016

b.

Consolidated statements of profit or loss for the years ended December 31, 2014, 2015 and 2016

c.

Consolidated statements of comprehensive income for the years ended December 31, 2014, 2015 and 2016

d.

Consolidated statements of changes in equity for the years ended December 31, 2014, 2015 and 2016

e.

Consolidated statements of cash flows for the years ended December 31, 2014, 2015 and 2016

f.

Notes to consolidated financial statements.











 


CHINA NATURAL RESOURCES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016

 

Pages

 

 

Report of independent registered public accounting firm

F-2 – F-3

 

 

Consolidated statements of financial position

F-4 – F-5

 

 

Consolidated statements of profit or loss

F-6 – F-7

 

 

Consolidated statements of comprehensive income

F-8

 

 

Consolidated statements of changes in equity

  F-9 – F-10

 

 

Consolidated statements of cash flows

F-11 – F-12

 

 

Notes to consolidated financial statements

F-13 – F-60






F-1



 


REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Shareholders of

China Natural Resources, Inc.


We have audited the accompanying consolidated statements of financial position of China Natural Resources, Inc. (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statement of profit or loss, statement of comprehensive income, statement of changes in equity and statement of cash flows for the each of the two years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2016 and 2015 and the consolidated results of its operations and its cash flows for each of the two years then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.



/s/ Ernst & Young Hua Ming LLP

Beijing, People’s Republic of China


June 19, 2017













F-2



 


REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Shareholders of

China Natural Resources, Inc.


We have audited the accompanying consolidated statement of financial position of China Natural Resources, Inc. (the “Company”) as of January 1, 2015 and the related consolidated statement of profit or loss, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended December 31, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of January 1, 2015 and the consolidated results of its operations and its cash flows for the year ended December 31, 2014, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.



/s/ Ernst & Young

Hong Kong


April 27, 2015, except for the effects of the business combination under common control as explained in Note 5, as to which the date is June 19, 2017.




 



F-3



 


CHINA NATURAL RESOURCES, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

JANUARY 1, 2015, DECEMBER 31, 2015 AND 2016

(Amounts in thousands)


 

 

 

 

January 1,

 

December 31,

 

 

 

 

 

2015

 

2015

 

 

2016

 

 

2016

 

 

 

Notes

 

CNY

 

CNY

 

 

CNY

 

 

US$

 

 

 

 

 

(Restated)

 

(Restated)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

  

                    

  

                    

  

                    

  

  

                    

  

  

                    

  

NON-CURRENT ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

6

 

13,632

 

 

49,390

 

 

 

54,523

 

 

 

7,851

 

Rehabilitation fund

 

7

 

3,850

 

 

3,957

 

 

 

3,972

 

 

 

572

 

Prepayments

 

 

 

30

 

 

130

 

 

 

56

 

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL NON-CURRENT ASSETS

 

 

 

17,512

 

 

53,477

 

 

 

58,551

 

 

 

8,431

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories

 

8

 

13,511

 

 

7,361

 

 

 

10,557

 

 

 

1,520

 

Prepayments

 

 

 

136

 

 

186

 

 

 

330

 

 

 

48

 

Other receivables

 

 

 

614

 

 

4,726

 

 

 

6,127

 

 

 

882

 

Due from a related party

 

 

 

626

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

48,263

 

 

45,307

 

 

 

19,228

 

 

 

2,769

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL CURRENT ASSETS

 

 

 

63,150

 

 

57,580

 

 

 

36,242

 

 

 

5,219

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

 

80,662

 

 

111,057

 

 

 

94,793

 

 

 

13,650

 



 



The accompanying notes are an integral part of these consolidated financial statements.


F-4



 


CHINA NATURAL RESOURCES, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED)

JANUARY 1, 2015, DECEMBER 31, 2015 AND 2016

(Amounts in thousands)


 

 

 

 

January 1,

 

December 31,

 

 

 

 

 

2015

 

2015

 

 

2016

 

 

2016

 

 

 

Notes

 

CNY

 

CNY

 

 

CNY

 

 

US$

 

 

 

 

 

(Restated)

 

(Restated)

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

  

                    

  

                    

  

                    

  

  

                    

  

  

                    

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade payables

 

9

 

1,462

 

 

2,801

 

 

 

2,736

 

 

 

394

 

Other payables and accrued liabilities

 

10

 

16,151

 

 

20,449

 

 

 

17,361

 

 

 

2,500

 

Taxes payable

 

 

 

20,214

 

 

22,629

 

 

 

22,627

 

 

 

3,258

 

Due to related companies

 

22

 

 

 

65,971

 

 

 

21,007

 

 

 

3,025

 

Due to the Shareholder

 

22

 

 

 

11,752

 

 

 

12,565

 

 

 

1,809

 

Deferred income

 

11

 

 

 

287

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL CURRENT LIABILITIES

 

 

 

37,827

 

 

123,889

 

 

 

76,296

 

 

 

10,986

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NON-CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due to the Shareholder

 

 

 

15,374

 

 

 

 

 

 

 

 

 

Asset retirement obligations

 

12

 

4,221

 

 

4,967

 

 

 

5,302

 

 

 

763

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL NON-CURRENT LIABILITIES

 

 

 

19,595

 

 

4,967

 

 

 

5,302

 

 

 

763

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

 

57,422

 

 

128,856

 

 

 

81,598

 

 

 

11,749

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EQUITY / (DEFICIENCY IN ASSETS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued capital

 

23

 

312,081

 

 

312,081

 

 

 

312,081

 

 

 

44,937

 

Other capital reserves

 

23

 

636,960

 

 

636,960

 

 

 

692,518

 

 

 

99,717

 

Reserves

 

 

 

58,797

 

 

64,233

 

 

 

63,180

 

 

 

9,097

 

Accumulated losses

 

 

 

(980,085

)

 

(1,026,970

)

 

 

(1,049,647

)

 

 

(151,139

)

Other comprehensive loss

 

 

 

(4,513

)

 

(4,103

)

 

 

(4,937

)

 

 

(711

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL EQUITY / (DEFICIENCY IN ASSETS)

 

 

 

23,240

 

 

(17,799

)

 

 

13,195

 

 

 

1,901

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY / (DEFICIENCY IN ASSETS)

 

 

 

80,662

 

 

111,057

 

 

 

94,793

 

 

 

13,650

 





The accompanying notes are an integral part of these consolidated financial statements.


F-5



 


CHINA NATURAL RESOURCES, INC.

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016

(Amounts in thousands, except share and per share data)


 

 

 

 

 

Year Ended December 31,

 

 

 

 

 

 

2014

 

 

2015

 

 

2016

 

 

2016

 

 

 

Notes

 

 

CNY

 

 

CNY

 

 

CNY

 

 

US$

 

 

 

 

 

 

 

 

 

(Restated)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

13

 

 

 

 8,303

 

 

 

 18,342

 

 

 

 

 

 

 

Cost of sales

 

14

 

 

 

 (6,563

)

 

 

 (31,936

)

 

 

 

 

 

 

Gross profit/(loss)

 

 

 

 

 

 1,740

 

 

 

 (13,594

)

 

 

 

 

 

 

Selling and distribution expenses

 

 

 

 

 

 (80

)

 

 

 (31

)

 

 

(23

)

 

 

(3

)

Administrative expenses

 

 

 

 

 

(12,226

)

 

 

(20,163

)

 

 

(15,014

)

 

 

(2,162

)

Losses arising from temporary suspension of production

 

 

 

 

 

 

 

 

(830

)

 

 

(4,073

)

 

 

(586

)

Impairment loss on property, plant and equipment

 

17

 

 

 

(8,065

)

 

 

 (7,542

)

 

 

 

 

 

 

Write-down/(Reversal of write-down) of inventories to net realizable value, net

 

17

 

 

 

(9,299

)

 

 

 5,474

 

 

 

1,744

 

 

 

251

 

Other operating income/(expense), net

 

 

 

 

 

554

 

 

 

(3,424

)

 

 

(3,182

)

 

 

(457

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING LOSS

 

 

 

 

 

(27,376

)

 

 

(40,110

)

 

 

(20,548

)

 

 

(2,957

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance costs

 

15

 

 

 

(392

)

 

 

(444

)

 

 

(331

)

 

 

(48

)

Foreign exchange difference, net

 

 

 

 

 

 

 

 

(354

)

 

 

 

 

 

 

Interest income

 

17

 

 

 

1,602

 

 

 

1,056

 

 

 

194

 

 

 

28

 

Non-operating expenses, net

 

16

 

 

 

(218

)

 

 

(93

)

 

 

(2,351

)

 

 

(339

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS BEFORE INCOME TAX FROM CONTINUING OPERATIONS

 

17

 

 

 

(26,384

)

 

 

 (39,945

)

 

 

(23,036

)

 

 

(3,316

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

19

 

 

 

(6,839

)

 

 

(1,504

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FOR THE YEAR FROM CONTINUING OPERATIONS

 

 

 

 

 

(33,223

)

 

 

(41,449

)

 

 

(23,036

)

 

 

(3,316

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the period from discontinued operations, net of tax

 

3

 

 

 

(10,708

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FOR THE YEAR

 

 

 

 

 

(43,931

)

 

 

(41,449

)

 

 

(23,036

)

 

 

(3,316

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATTRIBUTABLE TO:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owners of the Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

From continuing operations

 

 

 

 

 

(33,223

)

 

 

(41,449

)

 

 

(23,036

)

 

 

(3,316

)

From discontinued operations

 

3

 

 

 

(9,925

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(43,148

)

 

 

(41,449

)

 

 

(23,036

)

 

 

(3,316

)

Non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

From continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

From discontinued operations

 

3

 

 

 

(783

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(783

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(43,931

)

 

 

(41,449

)

 

 

(23,036

)

 

 

(3,316

)




The accompanying notes are an integral part of these consolidated financial statements.


F-6



 


CHINA NATURAL RESOURCES, INC.

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS (CONTINUED)

YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016

(Amounts in thousands, except share and per share data)


 

 

 

 

 

Year Ended December 31,

 

 

 

 

 

 

2014

 

 

2015

 

 

2016

 

 

2016

 

 

 

Notes

 

 

CNY

 

 

CNY

 

 

CNY

 

 

US$

 

 

 

 

 

 

 

 

 

(Restated)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS PER SHARE ATTRIBUTABLE TO OWNERS OF THE COMPANY:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- For loss from continuing operations

 

20

 

 

 

(1.33

)

 

 

(1.66

)

 

 

(0.92

)

 

 

(0.13

)

- For loss from discontinued operations

 

20

 

 

 

(0.40

)

 

 

 

 

 

 

 

 

 

- Net loss per share

 

 

 

 

 

(1.73

)

 

 

(1.66

)

 

 

(0.92

)

 

 

(0.13

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- For loss from continuing operations

 

20

 

 

 

(1.33

)

 

 

(1.66

)

 

 

(0.92

)

 

 

(0.13

)

- For loss from discontinued operations

 

20

 

 

 

(0.40

)

 

 

 

 

 

 

 

 

 

- Net loss per share

 

 

 

 

 

(1.73

)

 

 

(1.66

)

 

 

(0.92

)

 

 

(0.13

)






The accompanying notes are an integral part of these consolidated financial statements.


F-7



 


CHINA NATURAL RESOURCES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016

(Amounts in thousands)


 

 

Year Ended December 31,

 

 

 

2014

 

 

2015

 

 

2016

 

 

2016

 

 

 

CNY

 

 

CNY

 

 

CNY

 

 

US$

 

 

 

 

 

 

 

 

(Restated)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FOR THE YEAR

 

 

(43,931

)

 

 

(41,449

)

 

 

(23,036

)

 

 

(3,316

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income to be reclassified to profit or loss in subsequent periods:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(3,388

)

 

 

410

 

 

 

(834

)

 

 

(120

)

Available-for-sale investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair value

 

 

 

 

 

631

 

 

 

 

 

 

 

Reclassification adjustments for gains included in the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

consolidated statement of profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- gain on disposal

 

 

 

 

 

(631

)

 

 

 

 

 

 

Total other comprehensive (loss) / income for the year, net of tax

 

 

(3,388

)

 

 

410

 

 

 

(834

)

 

 

(120

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE LOSS FOR THE YEAR, NET OF TAX

 

 

(47,319

)

 

 

(41,039

)

 

 

(23,870

)

 

 

(3,436

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owners of the Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

From continuing operations

 

 

(36,626

)

 

 

(41,039

)

 

 

(23,870

)

 

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