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Public company info - CAA Resources Ltd. , 02112.HK

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CAA Resources Ltd., 02112.HK - Company Profile
Chairman Li Yang
Share Issued (share) 1,500,000,000
Par Currency Hong Kong Dollar
Par Value 0.01
Industry Steel
Corporate Profile Business Summary: The Group was principally engaged in the business of mining, ore processing, sales of iron ore products and other commodities to steel manufacturers and/or their respective purchase agents in Mainland China as well as investment holding. Performance for the year: • The Group’s revenue reached approximately USD1,240.7 million, representing 125.5% higher than USD550.2 million recorded in the year of 2015. • The Group’s gros s prof i t reached approximately USD13.7 mi l l ion, approximately 8.1% lower than the approximately USD14.9 million recorded in year of 2015. • Profit for the year ended 31 December 2016 increased by 616.7%, from approximately USD0.6 million for the year ended 31 December 2015 to approximately USD4.3 million for the year ended 31 December 2016. BUSINESS REVIEW Compared with 2015, the iron and steel industry was generally profitable in 2016. The reason is that the capital expenditure of enterprises in the iron and steel industry has shrunk significantly for a number of years consecutively so that there was almost no new production capacity in the iron and steel industry in recent years. Moreover, with the effects of the periodic depreciation of equipment, some of the production capacity of the previous investment and construction cycle will soon enter the phasing out and scrapping stage. As the policy of eliminating backward production capacity gets implemented, the degree of excess supply of production capacity in the iron and steel industry overall has been kept within reasonable scale. Profits in the iron and steel industry and the rising prices of iron and steel products drove up the prices of iron ore. By December 2016, the Platts 62% - Fe Iron Ore Index had risen above USD80 per tonne. The four largest mines in the world immediately released production capacity afterwards. The high ore prices also caused some of the overseas mines that had been laid aside before in higher-cost areas to reopen. From the third quarter of 2015 to the first quarter of 2016, a lot of mines with a high production capacity in the Chinese mainland were closed due to losses. Because of the high costs of resuming production and high finance costs, some of the mines which were forced to close and stop production when iron ore prices were low will leave the market for good. This caused the iron ore production of the Chinese mainland to drop. According to the Result of a Forecast of the Demand for Iron and Steel in China 2017 released by the China Metallurgical Industry Planning and Research Institute, the production output of the raw ore of iron ore in China was 1,280 Mt for the whole of 2016, representing a decrease of 7.3% compared with the last year. Since 2012, the production output of raw iron ore in China has cumulatively decreased by 47%. In 2016, although the total demand for iron ore in China dropped slightly, as the production output of iron ore in China also dropped, the total quantity of iron ore imports still increased. According to the figures, the pig iron production output of China was approximately 691 Mt in 2016 and consumption of iron ore was 1,092 Mt, which was about the same as the previous year. In 2016, iron ore arrivals by sea to China reached a record 1,017.79 Mt and the figure was 972.28 Mt in 2015, representing an increase of approximately 4.68%. Chinese market’s dependence on iron ore imports rose from 84% in 2015 to 87.3% in 2016. Major operating results Due to the fluctuation of iron ore price, the Company has decided not to fully resume the mine production activities in 2016 as these would expose the Company to the risks of downward price trend after the iron ores are duly through the mining and beneficiation process. As such, the Company has kept its focus on the mine trading activities. The majority of the profits are generated by the commercial trading of iron ore and other commodities. Although an increased demand for iron ore import from customers in China persisted and thus a considerable growth in both sale volume and revenue were recorded during the year under review, intense competition of the global commodity market has resulted in decrease in gross profit margin of the Group comparing to 2015. For the year ended 31 December 2016, the Group’s sales revenue leaped up by 125.5% to approximately USD1,240.7 million (2015: approximately USD550.2 million). Sales volume of iron ore products surged 124.6% to approximately 18,727 Kt on dry basis (2015: approximately 8,338 Kt). Products sold had average iron ore grades of 62.5% (2015: 64.0%), with average selling price of iron one products on dry basis at USD57.3 per tonne (2015: USD58.0 per tonne). As a result of the Group’s strategy to acquire more market share and market competition despite the increase in sales volume, the Group recorded decrease in gross profit by 8.1% in 2016 to USD13.7 million compared to USD14.9 million in 2015. The gross profit margin for 2016 dropped to 1.1% (2015: 2.7%). The Group’s profit for the year increased by 616.7% from USD0.6 million in 2015 to USD4.3 million, mainly as a result of the decrease in other expenses with respect to foreign exchange loss and loss on disposal of machinery. Basic earnings per Share for the year 2016 was USD0.29 cents (2015: USD0.04 cents). Project Ibam The Group’s principal mining site is Project Ibam, which is one of the most resources rich mine with high iron content in Malaysia. Based on the “Independent Technical Report” (see Appendix IV of the Prospectus of the Company for full report) there is approximately 151 Mt of ore resource at a grade higher than or equal to 35%, with an average grade of 46.5% total iron, and it has a mine life expected to be more than 26 years as of 31 December 2012. The Group uses the open-pit mining method to simplify operations and reduce production costs. The Group produces iron ore products through a relatively low-cost process which includes ball-milling, magnetic separation process and dewatering. The method is environmentally friendly as it does not require chemical additives and reduces the amount of waste water produced. Reference is made to the section headed “Business – Overview – Project Ibam” in the prospectus (“Prospectus”) of the Company dated 20 June 2013. Unless otherwise defined, capitalised terms used in this announcement have the same meanings as defined in the Prospectus. The tenure of the previous Mining Lease with respect to Ibam Mine which is to expire on 15 December 2016, has been extended for two years expiring on 15 December 2018 (“Extended Term”). Best endeavours have been made to procure the extension of the Mining Lease, and the Extended Term has been granted with the approval of the governmental authorities in Malaysia. For details, please refer to the announcement dated 15 December 2016. In light of the market conditions, the Group did not purchase additional beneficiation lines or crushing lines during the year under review. As at 31 December 2016, the Group had a total of 5 beneficiation lines (2015: 5), and a total of 2 crushing lines (2015: 2), the annual mining volume of Project Ibam reached 175.9 Kt (2015: 67 Kt). Project Ibam accounted for about 0.1% of the Group’s total revenue (2015: 0.5%). Due to the fluctuation of the international iron ore price during 2016, the Group considered that it would be more economically cost-efficient to conduct trading of iron-ore mines instead of self-production of iron-ore mines, as the procurement costs of trading of iron-ores is relatively lower than the production plus freight costs for self-production of Project Ibam. As such, the Group made certain strategic adjustments to focus on the iron ore trading business since 2015. Primary activities in exploration, mining, crushing and beneficiation at the Ibam Mine have been reduced to minimal level since 2015. Instead, the Group switched its focus to the trading of iron ore products in the form of iron ore concentrates and iron ore fines and other commodities on indent basis. During the year under review, no exploration activities were carried out at the Ibam Mine. Prospects: Downstream demand for iron and steel mainly comes from the construction industry. The direct and indirect construction industries account for approximately 70% of the total iron and steel consumption. Therefore, the changes in iron and steel consumption are rooted in the construction industry, and the construction industry is mainly about infrastructure and real estate. According to the newest Central Economic Work Conference convened in China, the fundamental key of work of “seeking growth while achieving stability” in 2017 basically sets this year for a continuation of an active fiscal policy. Therefore, infrastructure investment leading from fiscal policies still remains high. In turn, the demand for steel will continue to remain steady at a high level. Since the first quarter of 2017, the demand for iron ore has been in line with the property market, which has stayed relatively stable. Considering the existing housing inventory, uncompleted inventory, and current housing inventory, the overall potential inventory is approaching a historical low. Viewing the situation according to tier, after seeing a continuous improvement in sales and rises in housing prices in 2015/16, there has been a clear decline in inventory in cities of different tiers. As China adjusts the strength of adjusting and controlling its real estate policy, judging on the current state of real estate inventory clearance, there may be a need to restock in 2017. Therefore, stable support will be built for the demand for iron ore from the real estate industry of China. In addition, China Customs figures also show that under the circumstances of a drop in the total demand for iron ore and a rise in its import and a large increase in port inventory, the living space of small and medium mines in China will continue to be compressed. It is therefore expected that China’s dependence on iron ore imports will continue to be high in 2017. This is good news for the Group. In summary, the demand for iron ore in China will still depend on the overall effect of the specific effects of the implementation of an active fiscal policy to stimulate demand by the government and the healthy and stable development of the real estate market. It is alternatively thought that under the current overall macroeconomic market conditions in 2017, there is still strong pressure for accelerated downward movements of the economy. It is estimated that the demand for steel in China will be approximately 660 Mt in 2017, representing a decrease of approximately 1.5% compared with the last year. To estimate based on the current situation, there may be a small decline in the imports of iron ore into China in 2017 as compared with 2016. There are currently no plans for the four major mines to cut production, and there is no sign that the supply of iron ore will stop growing. It is expected that the overall supply of iron ore will increase in 2017. If iron ore prices can stay at USD70 to USD80 per tonne, there is a possibility that some mines in China and some non-mainstream foreign mines may resume production one after another. In 2017, it is expected that the economic growth of China and emerging markets will slow down. Together with an increase in iron ore supply, iron ore prices may slip again.

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