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Public company info - Huili Resources (Group) Ltd. , 01303.HK
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Huili Resources (Group) Ltd., 01303.HK - Company Profile
Chairman Xiang Siying
Share Issued (share) 1,620,000,000
Par Currency Hong Kong Dollar
Par Value 0.1
Industry Nonferrous Metal
Corporate Profile Business Summary: The Company is an investment holding company and its subsidiaries are principally engaged in the mining, ore processing, sales of nickel, copper, lead and zinc products, financial services, engineering and other related services in the People’s Republic of China (the “PRC”). Performance for the year: During the Year, the revenue increased by almost two folds to approximately RMB93.6 million from approximately RMB32.8 million for the Prior Year. The gross profit decreased by approximately 63% from approximately RMB8.8 million for the Prior Year to approximately RMB3.3 million for the Year. BUSINESS REVIEW The Huili Resources (Group) Limited (the “Company”) and its subsidiaries (together the “Group”) mainly participate in nonferrous ore mining and processing. The diversified non-ferrous metal minerals covered by the Company’s operations include nickel, copper, zinc and lead in Xinjiang Uyghur Autonomous Region (“Xinjiang”), the PRC and gold in Shaanxi province, the PRC. The mining and exploration tenements and ore processing plants in Xinjiang are located close to the municipal city of Hami county, which is approximately 400 kilometers (“km”) southeast of Urumqi, the capital of Xinjiang. Huangjinmei tenement, which is the Company’s gold operation, is located 15 km by sealed road from the regional town of Jinchuan, Ningshan county. The town of Jinchuan is located approximately 140 km south of Xi’an city and is connected by the G210 state highway. The Company’s subsidiaries, Hami Jinhua Mineral Resource Exploiture Ltd* (“Hami Jinhua”) and Hami Jiatai Mineral Resource Exploiture Ltd* (“Hami Jiatai”), own two mining permits and three exploration permits of non-ferrous metals in Xinjiang, the PRC. Another subsidiary of the Company, Shaanxi Jiahe Mineral Exploiture Ltd* (“Shaanxi Jiahe”), owns a mining permit of gold in Shaanxi province, the PRC. The price of copper, nickel, zinc and lead demonstrated opposite moves during the year ended 31 December 2019 (the “Year”). The price of copper reached at its peak about March 2019, and then dropped gradually to its trough near September 2019 and fluctuated near the trough until there was a signal of rebound near the end of 2019. On the contrary, the price of lead declined to its bottom in May 2019, and increased gradually to its peak of the Year in October 2019 but subsequently dropped drastically to near the bottom again by December 2019 (Source: The London Metal Exchange). On the other hand, the price of nickel and zinc fluctuated relatively less wildly than that of copper and lead. While the price of nickel increased from its low from the beginning of 2019 to its peak about September 2019 and then recorded a decline of around 30% within three months, the price of zinc only showed an increasing trend in the first quarter of 2019 and then dropped steadily and hit the rock bottom in the December 2019 (Source: The London Metal Exchange). Since the Company is of the view that the commodities’ price had not yet stabilised at a high enough level for the business segment to be profitable, the Group continued to temporarily suspend its mining activities and scheduled maintenance work during the Year, in order to extend the mine services lives and minimise the operating loss. This also allows the Group to preserve the value of the assets. The Group will closely monitor the window to restart its mines production and will also look for potential partners to jointly develop the mines in order to maximise their economic values. Meanwhile, in view of the potentially long investment horizon of Shaanxi Jiahe and the adverse commodities market conditions that posted financial risks to the Group’s overall operations and business portfolio, the Group, on 24 December 2019, entered into an agreement (the “Jiahe Disposal Agreement”) with an independent third party to dispose the entire equity interests of Shaanxi Jiahe (the “Jiahe Disposal”). The Jiahe Disposal allowed the Group to better optimise its business portfolio from a risk management perspective, and offered an opportunity for the Group to exit at acceptable terms and reallocated its financial and management resources to other businesses of the Group with a view to generate better return. On 23 March 2020, completion of the Jiahe Disposal has taken place and Shaanxi Jiahe had ceased to be a subsidiary of the Company. Mining Permits Hami Jinhua and Hami Jiatai hold two mining permits, namely No. 20 Mine and Baiganhu Mine. No. 20 Mine produces copper and nickel ores. To meet new requirements of safety production, No. 20 Mine has to upgrade its lifting system before the production can be relaunched. Baiganhu Mine produces lead and zinc ores. The Group is assessing the possibility for the commencement of productions of both mines and will also look for potential partners to jointly develop the mines to capture the economic values of both mines. Meanwhile, in December 2019, the Group entered into the Jiahe Disposal Agreement to dispose the entire equity interests of Shaanxi Jiahe, which held the mining permit of Mine 1 of Project Huangjinmei that produces gold ore, and completion of the Jiahe Disposal has taken place as at the date of this report. Exploration Permits Hami Jiatai holds three exploration permits in Xinjiang namely Baiganhu Gold, Huangshan and H-989, with minerals covering gold, nickel and copper. Preliminary exploration and/or drilling plans for such tenements had been considered. Hami Jiatai had conducted some exploration at Baiganhu Gold tenement, and identified the preliminary mineralisation band and the ore deposit. Subject to the market condition and local requirements, the Group will devote reasonable resources and/or co-operate with any potential partners to carry out further exploration in order to enrich the resources and reserve bases. In relation to the exploration right of Mine 2 of Project Huangjinmei, the Group, on 24 December 2019, entered into the Jiahe Disposal Agreement with an independent third party to dispose the entire equity interests of Shaanxi Jiahe, the subsidiary of the Group that owns Project Huangjinmei, and the Jiahe Disposal was completed as at the date of this report. Ore Processing Plants Hami Jiatai operates a copper-nickel ore processing plant and Hami Jinhua owns a lead-zinc ore processing plant. Both plants were set up to process the ore extracted from their deposits, and adopt a non-conventional flotation circuit. The throughput capacity of both plants is 1,500 tons per day respectively. Nickel, copper, lead and zinc concentrates are separated and recovered from ore processing for sale. Hami Jiatai and Hami Jinhua did not carry out any mining and processing activities during the Year. Financial Services On 11 December 2018, the Group entered into a loan agreement to provide a loan of Renminbi (“RMB”) 100 million to an independent third party (the “Loan 1”) and such loan was settled in December 2019. On 4 December 2019, the Group signed another loan agreement with an independent third party to provide a loan of RMB65 million (the “Loan 2”), interest bearing at 7% per annum for a term of 5 months, and may be extended for 19 months, and may thereafter further be extended for 12 months. Revenue of approximately RMB6.4 million (2018: RMB6.6 million) was generated by this segment during the Year. Further details of the Loan 1 were disclosed in the announcements of the Company dated 11 December 2018, 8 October 2019 and 2 December 2019, and further details of the Loan 2 were disclosed in the announcement of the Company dated 4 December 2019. Subsequent to the end of the Year and up to the date of this report, the Group entered into three separate loan agreements with three different independent third parties to provide three loans of RMB6 million each. Among the three loans, two carry a term of 36 months and one carries a term of 6 months, and all bear the interest of 7% per annum. On 28 February 2020, upon the request of the borrower of the Loan 2 and under the approval of the board (the “Board”) of directors (the “Director(s)”) of the Company, the Loan 2 was extended for 31 months after the end of the current 5-month term (the “Extension”). Further details of the Extension were disclosed in the announcement of the Company dated 28 February 2020. Engineering Services The Group carried out the business of engineering and other related services in Shanxi province, the PRC through a whollyowned subsidiary of the Company, Yonghe County Changshi Engineering Service Co., Ltd.* (“Changshi”). Changshi was incorporated in Shanxi province, the PRC on 29 January 2016 and was acquired by the Group in April 2017. It is principally engaged in petrol, natural gas, coalbed gas engineering and pre-drilling service. During the year ended 31 December 2018 (the “Prior Year”), in order to diversify the business risks associated with the uncertain economic conditions, the Group diversified into the trade in materials for oil and gas exploration, including fracturing sands and water, gas drilling equipment and valves. The Group decided to temporarily suspend this segment to concentrate its resources on the coal trading business, which was a new business segment established during the Year. Trading Business During the Year, the Group has commenced the coal trading business through two newly established indirectly owned subsidiaries, Changzhi Runce Trading Company Limited* (“Changzhi Runce”) and Gujiao Runce Trading Company Limited* (“Gujiao Runce”). The customers of this business segment are mainly local coal traders and energy companies. This segment has contributed RMB85.8 million to the Group’s revenue during the Year. Update in relation to Shaanxi Jiahe After the settlement of legal proceeding between Xiaoyi Dajieshan Coal Industry Company Limited* (“Xiaoyi Dajieshan”) and Hami Jiatai, being the subsidiary of the Company that owned 100% equity interests of Shaanxi Jiahe, in relation to the disposal of the entire equity interests of Shaanxi Jiahe in December 2015, Shaanxi Jiahe was transferred back to Hami Jiatai on 22 May 2018 (further details as disclosed in the announcements of the Company dated 18 December 2015, 31 May 2018 and 17 August 2018). Immediately after the transfer back of Shaanxi Jiahe and as at 31 December 2018, the Group carried out valuations to determine the fair value of the 100% equity interests in Shaanxi Jiahe at the date of transfer-back and the recoverable amount of the mining rights as at 31 December 2018 respectively, and have adopted the following assumptions: (1)the title of the mining rights of Mine 2 will be transferred to Shaanxi Jiahe (the “Transfer”) at no additional charges and will meet the legal requirements to commence commercial operation by the third quarter of 2020 (“Assumption 1”); and (2)Shaanxi Jiahe’s non-operating receivables due from certain independent third parties amounted to RMB17.8 million will be fully recoverable in the near future (“Assumption 2”). In connection with Assumption 1, while the Company had been discussing with the owner that currently holds the exploration right of Mine 2 (the “Current Owner”) in relation to the Transfer, the Company also maintained an open discussion with interested purchasers on the disposal of Shaanxi Jiahe. On 24 December 2019, the Company entered into the Jiahe Disposal Agreement with an independent third party on the Jiahe Disposal, which was subsequently completed as at the date of this report. For further details of the Jiahe Disposal, please refer to the Company’s announcements dated 4 November 2019 and 24 December 2019. Regarding Assumption 2, the relevant parties in respect of the non-operating receivables and the non-operating payables of Shaanxi Jiahe have concluded a set-off arrangement for such receivables and payables in April 2019. Upon the execution of such agreement, the non-operating receivables and the non-operating payables of Shaanxi Jiahe have been respectively fully recovered and settled. Prospects: Sentiments of both the capital market and businesses have been affected by the prospect of a prolonged trade war between China and the United States and the former’s decelerating economic growth. Despite the ongoing Sino-United States trade war and China’s decelerating economic growth have cast uncertainty over the prospect of the commodity market, the Group will continue to, while mitigating the risk associated with external economic and business risk, study the feasibility of resuming the productions for the mines owned by the Group with the expectation in capitalising on China’s economic growth in the future. During the Year, the Group has commenced trading of coals and will continue to devote reasonable resources into the existing business segment. Notably, the Group’s new coal trading business has already contributed RMB85.8 million to the Group’s revenue. Currently, the Group is actively exploring the potential to fully utilise the Group’s expertise and network in the industry through widening the scope of business of trading of coals. Apart from the existing businesses, the Group will also continuously seek for other opportunities to diversify the Group’s businesses, both business segments and locations to reduce the business risks arising from the volatile commodities markets. This is part of the Group’s ongoing move to strengthen its diverse businesses with the aim of broadening its income stream. It is also aimed to minimise the impact of the adverse commodities market conditions on the Group’s overall business performance. Looking ahead, the Company will do its best to carry out more active operations and explore opportunities for potential acquisition to capture the market opportunities in the PRC and other countries and to diversify the Group’s business and broaden its revenue base.

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