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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE
INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED ‘‘WARNING’’ ON
THE COVER OF THIS DOCUMENT.
BUSINESS
This section contains information regarding our Projects and our operations. Unless
otherwise indicated, all technical data in this section is extracted from or based on the
Independent Technical Report, which is included as Appendix III to this document. In addition,
we commissioned Frost & Sullivan to prepare the F&S Report. Unless otherwise indicated,
information and statistics relating to the graphite industry in the PRC in this section and other
sections of this document have been derived from the F&S Report.
We are a developing mining company which only had trial production during the Track
Record Period and have limited operating history. Certain business prospects and market
position of us described below, including our planned production schedule and
commercialisation plan, are based on forward-looking statements rather than historical facts.
Forward-looking statements involve inherent risks and uncertainties and are subject to
assumptions, some of which are beyond our control. We caution you that a number of important
factors could cause actual outcomes to differ materially from those expressed in any forward-
looking statements. Please refer to the sections headed ‘‘Forward-looking Statements’’ and ‘‘Risk
Factors’’ in this document for further details about such risks and uncertainties.
OVERVIEW
Our Group is a developing graphite mining company based in Chenzhou City, the PRC.
During the Track Record Period and up to the Latest Practicable Date, we had three Projects which
are located in Chenzhou City, namely Project Dishuidai, Project Qingshuijiang and Project
Dengzhanwo. According to the Independent Technical Consultants, graphite minerals of Project
Dishuidai, Project Qingshuijiang and Project Dengzhanwo are amorphous graphite, which can be
purified to ultra high purity graphite. During the Track Record Period, we had trial production at
Project Dishuidai and sold graphite ores mined from Project Dishuidai to our customers.
According to the Independent Technical Consultants, our mining Projects contain amorphous
graphite which can be purified to ultra high purity graphite with carbon content of 68–77%, with
the estimated graphite ore Reserve of approximately 252,000 tonnes, 7,500 tonnes, and 39,000
tonnes for Project Dishuidai, Project Qingshuijiang and Project Dengzhanwo, respectively, under
the JORC Code as at 31 January 2022. In addition, assuming a project production rate of 30,000
tonnes of graphite ores per annum and using the estimated average block yield, the Probable
Reserve of Project Dishuidai contains sufficient material for a potential project life over eight years.
As at the Latest Practicable Date, we held a mining licence for Project Dishuidai, which
covered a mining licensed area of approximately 0.1407 km 2 and have a validity period from 13
September 2017 to 13 November 2023. The work safety permit and the licence for blasting
operation entities held by Dishuidai expired in January 2022. Dishuidai is attending to the matters
related to the renewal of its work safety permit and it is estimated that the renewal would be
completed by September 2022. According to a confirmation issued by the Department of
Emergency Management of Chenzhou (郴州市應急管理局), the department was not aware of any
material legal impediment for the renewal of the work safety permit of Dishuidai so far. As advised
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INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED ‘‘WARNING’’ ON
THE COVER OF THIS DOCUMENT.
BUSINESS
by our PRC Legal Advisers, the Department of Emergency Management of Chenzhou is the
competent authority for the renewal of such permit, and based on the abovementioned confirmation,
they were not aware of any material legal impediment for us to renew the work safety permit of
Dishuidai so far. As the work safety permit is a prerequisite for the renewal of the licence for
blasting operation entities of Dishuidai, we plan to attend to its renewal upon obtaining the new
work safety permit. According to a confirmation issued by Chenzhou Public Security Bureau (郴州
市公安局), the bureau was not aware of any material legal impediment for the renewal of the
licence for blasting operation entities of Dishuidai so far. As advised by our PRC Legal Advisers,
Chenzhou Public Security Bureau is the competent authority for the renewal of such licence, and
based on the abovementioned confirmation, they were not aware of any material legal impediment
for us to renew the licence for blasting operation entities of Dishuidai so far. Nevertheless, in the
worst case scenario that we could not manage to complete the renewal of the licence for blasting
operation entities of Dishuidai as scheduled, we could engage third party contractors for blasting
operations at no material difference in costs, hence it is expected that the progress of the renewal of
the licence for blasting operation entities of Dishuidai would not have any material impact on our
commercialisation plan set out in the paragraph headed ‘‘Path to commercialisation’’ in this section.
The mining licences for Project Qingshuijiang and Project Dengzhanwo expired in September
2021 and January 2018, respectively. As we only had trial production at Project Dishuidai while
Project Qingshuijiang and Project Dengzhanwo had no production during the Track Record Period,
we did not renew the mining licences for Project Qingshuijiang and Project Dengzhanwo
immediately upon their respective expiry. According to confirmations issued by Chenzhou Natural
Resources and Planning Bureau (郴州市自然資源和規劃局), Qingshuijiang and Dengzhanwo are
attending to the matters related to the renewal of their mining licences and the bureau was not
aware of any material legal impediment for the renewal such licences so far. As advised by our
PRC Legal Advisers, Chenzhou Natural Resources and Planning Bureau is the competent authority
for the renewal of such licences, and based on the abovementioned confirmation, they were not
aware of any material legal impediment for us to renew such licences so far. The previous mining
licence for Project Qingshuijiang and Project Dengzhanwo covered a mining licensed area of
approximately 1.3302 km 2 and 0.2347 km 2 . Please refer to the paragraph headed ‘‘Our mineral
resources and mining rights’’ in this section for further details and other licences held by our
Group.
During the Track Record Period, we had trial production at Project Dishuidai and we sold
graphite ores to our customers. For the years ended 31 December 2019, 2020 and 2021, we sold
17,000 tonnes, 15,000 tonnes and 5,000 tonnes of graphite ores at an average selling price of
RMB538 per tonne, RMB499 per tonne and RMB548 per tonne, respectively, and recorded a
revenue for sale of graphite ores of approximately RMB9.2 million, RMB7.5 million and RMB2.7
million, respectively.
We plan to complete the development of our Projects and bring them to commercial
production, which includes setting up the infrastructure for all of our Projects and renewal of the
mining licences for Project Qingshuijiang and Project Dengzhanwo. Subject to the completion of
the [REDACTED] and the availability of the [REDACTED] from the [REDACTED], we plan to
commence stage 1 of our commercialisation plan in 2022 and commence commercial production at
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BUSINESS
Project Dishuidai in late 2022. In the circumstances, according to the Independent Technical
Consultants and our project development plan, the annual production volume of Project Dishuidai
could reach 30,000 tonnes of graphite ores by 2023, and Project Qingshuijiang and Project
Dengzhanwo in aggregate could produce approximately 41,850 tonnes of graphite ores in 2023 and
2024.
According to the F&S Report, while the sales volume of amorphous graphite raw ore in the
PRC is expected to grow at a CAGR of 6.4% in 2021 to 2025, the demand for ultra high purity
graphite in the PRC is expected to grow at a CAGR of 31.2% from 2021 to 2025. As stage 2 of our
commercialisation plan, we plan to set up our own processing plant to process graphite ores from
our Projects into ultra high purity graphite. We plan to have our processing plant reaching full
production with annual capacity of approximately 100,000 tonnes of amorphous graphite raw ores
to ultra high purity graphite in 2025. As stage 3 of our commercialisation plan, we also plan to
ramp up the graphite ore resources at our Projects in 2024. For details of our commercialisation
plan, please refer to the paragraph headed ‘‘Path to commercialisation’’ in this section.
OUR COMPETITIVE STRENGTHS
Our Directors believe that our Group has the following competitive strengths:
We have a large quantity of graphite resources to capture the growing demand for graphite in
the PRC
According to the Independent Technical Consultants, the estimated graphite ore Reserve of
Project Dishuidai, Project Qingshuijiang and Project Dengzhanwo under the JORC Code as at 31
January 2022 was approximately 252,000 tonnes, 7,500 tonnes, and 39,000 tonnes, respectively.
Subject to the completion of the [REDACTED] and the availability of the [REDACTED] from the
[REDACTED], we plan to commence stage 1 of our commercialisation plan in 2022 and commence
commercial production at Project Dishuidai in late 2022. In the circumstances, according to the
Independent Technical Consultants and our project development plan, the annual production volume
of Project Dishuidai could reach 30,000 tonnes of graphite ores by 2023, and Project Qingshuijiang
and Project Dengzhanwo in aggregate could produce approximately 41,850 tonnes of graphite ores
in 2023 and 2024. Please refer to the paragraph headed ‘‘Path to commercialisation — Stage 1 —
Project development’’ in this section for further details.
According to the F&S Report, the amorphous graphite mining market in China is relatively
concentrated, with the top five players accounted for a combined market share of around 87.9% in
2020, in terms of production volume. There are approximately 300 amorphous graphite mining
companies in China. The five largest amorphous graphite mining companies in China in 2020 in
terms of production volume produced 10.0 thousand tonnes to 190.0 thousand tonnes of amorphous
graphite in 2020. As such, upon full production of our Projects according to our development plan,
it is expected that we would become one of the largest amorphous graphite mining companies in
China in terms of production volume.
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According to the F&S Report, it is expected that there will be increasing demand for natural
graphite from downstream sectors including refractory materials, lubricant and lithium-ion batteries.
The conductivity of graphite is significantly better than other non-metals, and it is currently the
most widely used anode material for lithium-ion batteries. Driven by the rapid growth of lithium-
ion battery market with demand stemmed from the fast growth of consumer electronics,
transportation and energy storage industries, the battery industry has become the fastest growing
application sector of graphite and will further stimulate the demand for natural graphite.
The favourable market environment in the PRC mining industry has generated opportunities
for mining companies with large quantities of mineral resources. Leveraging the large quantity of
mineral resources of our Projects, we believe that we are well positioned to capture the growing
demand for graphite in the PRC.
Our vertically integrated business model is expected to help enhance profitability
Our Projects would offer a reliable source of quality amorphous graphite raw ore as raw
materials for production of ultra high purity graphite. According to the F&S Report, the average
price of amorphous graphite raw ore in China from 2018 to 2020 ranged from RMB1,595.0 per
tonne to RMB1,668.0 per tonne and is expected to reach RMB1,962.6 in 2025, while the average
price of ultra high purity graphite in China from 2018 to 2020 ranged from RMB65,500 per tonne
to RMB68,600 per tonne and is expected to reach RMB86,600 per tonne in 2025.
As at the Latest Practicable Date, we have entered into framework agreements with two third
party processing companies for the period of 2022 to 2024, pursuant to which such processing
companies agreed to provide processing services to process our graphite ores into ultra high purity
graphite, at a fee of RMB15,000 per tonne.
As part of our development plan, we plan to set up our own processing plant for production of
ultra high purity graphite. For details of the graphite processing method to be used, please refer to
the paragraph headed ‘‘Independent Technical Report — 6.5 Processing plant to be built with high
temperature purification technologies used for purifying amorphous graphite materials’’ in
Appendix III to this document.
By providing both graphite ores and ultra high purity graphite to our customers, we believe it
would offer us the flexibility to decide our product mix, which, in turn, helps us enhance our
profitability.
Going forward, as stage 2 of our commercialisation plan, we plan to set up our own
processing plant to process graphite ores from our Projects into ultra high purity graphite. We plan
to have our processing plant reaching full production with annual capacity of approximately
100,000 tonnes of amorphous graphite raw ores to ultra high purity graphite in 2025. Please refer to
the paragraph headed ‘‘Path to commercialisation — Stage 2 — Setting up our processing plant’’ in
this section for further details. We believe that, apart from providing us with a cost advantage over
other graphite mining companies which outsource graphite processing to third parties, having our
own processing plant would also enable us to implement stringent quality control across our
graphite processing process and enhance the market recognition of our products.
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We believe that our vertically integrated business model would enable us to capture the
opportunities in the graphite industry so as to enhance our profitability.
Our Projects have development potential
Our Projects are located in Chenzhou City, which is an area with rich reserves of natural
amorphous graphite. According to the F&S Report, the reserves of natural amorphous graphite in
Hunan province are concentrated in Chenzhou City, which accounted for over 45% of the total
proven natural amorphous graphite in China and over 25% of total reserves and resources in China,
respectively.
In order to ramp up our graphite ore reserves, as stage 3 of our commercialisation plan, we
plan to commence further geological exploration at our Projects in 2024. It is expected that
additional graphite ores reserve would be available to our Group upon the completion of the further
geological exploration. Please refer to the paragraph headed ‘‘Path to commercialisation — Stage 3
— Further geological exploration of our Projects’’ in this section for further details.
We believe that further geological exploration at our Projects would offer us a sustainable
source of graphite reserve, and allow our Group to continue to capture the opportunities in the
graphite industry in the PRC.
Favourable government policies for the graphite industry in the PRC, in particular in the
Hunan Province
Recently, China has been making efforts on improving and upgrading the graphite industry by
establishing a regulation basis. The ‘‘Graphite Industry Specification Conditions’’《石墨行業規範條
件》issued by the Ministry of Industry and Information Technology in June 2020 put forward
higher requirements for the graphite industry in terms of processing technology, product quality,
and resource protection. With the improvement of the strategic position of graphite resources, the
graphite industry chain is facing a trend of integration and upgrading. At present, the domestic
graphite industry is still in a state of low-end and disorderly development, and low-end products are
prevalent in the industry. The introduction of new regulations is expected to drive the industry to
shift to high value-added products and technological innovation-driven transformation.
In addition, the project of the ‘‘Key Technology and Demonstration of Reduction of Graphite
Resources from the Mining and Processing Source’’《石墨資源開採加工源頭減量關鍵技術與示範》
was successfully approved by the Ministry of Science and Technology. The project focuses on
conquering bottlenecks of deep processing technologies, puts forward the solutions and technical
routes to produce high-end graphite products, and is expected to improve the technology ability of
utilising and recycling graphite solid waste.
Furthermore, according to the ‘‘Three-year Action Plan for Carbon-based Materials Industry
Chain in Hunan Province’’《湖南省碳基材料產業鏈三年行動計劃》, the government encourages the
development of an industry cluster of graphite and graphene-derived new products with Chenzhou
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City as the core and the upgrading of the graphite and graphene industry chain, targeting to form a
new graphite and graphene-derived product agglomeration area centered in Chenzhou City and
supported by Changsha City, Yueyang City, Loudi City, Xiangtan City, Zhuzhou City.
Our Group is a developing graphite mining company based in Chenzhou City, the PRC. Our
Directors believe that we are well positions to benefit from the favourable policies of the PRC
government towards the graphite industry, in particular the favourable policies of the government of
Hunan Province, which would in turn support the development of our Group.
OUR STRATEGIES
We strive to become one of the leading graphite mining companies in the PRC. To achieve
this objective, we plan to implement the following business strategies:
Complete the development of our Projects and bring them to commercial production
During the Track Record Period, we had three Projects which are located in Chenzhou City,
namely Project Dishuidai, Project Qingshuijiang and Project Dengzhanwo. According to the
Independent Technical Report, the estimated graphite ore Reserve of Project Dishuidai, Project
Qingshuijiang and Project Dengzhanwo under the JORC Code as at 31 January 2022 was
approximately 252,000 tonnes, 7,500 tonnes and 39,000 tonnes, respectively.
We only had trial production at Project Dishuidai during the Track Record Period and all our
Projects had no commercial production as at the Latest Practicable Date. As such, completing the
development of our Projects and bringing them to production are the foremost foundation in
realising our vision.
As at the Latest Practicable Date, we held a mining licence for Project Dishuidai. The mining
licences for Project Qingshuijiang and Project Dengzhanwo expired in September 2021 and January
2018, respectively. The work safety permit and the licence for blasting operation entities held by
Dishuidai expired in January 2022. Dishuidai is attending to the matters related to the renewal of its
work safety permit and it is estimated that the renewal would be completed by September 2022.
According to a confirmation issued by the Department of Emergency Management of Chenzhou (郴
州市應急管理局), the department was not aware of any material legal impediment for the renewal
of the work safety permit of Dishuidai so far. As advised by our PRC Legal Advisers, the
Department of Emergency Management of Chenzhou is the competent authority for the renewal of
such permit, and based on the abovementioned confirmation, they were not aware of any material
legal impediment for us to renew the work safety permit of Dishuidai so far. As the work safety
permit is a prerequisite for the renewal of the licence for blasting operation entities of Dishuidai,
we plan to attend to its renewal upon obtaining the new work safety permit. According to a
confirmation issued by Chenzhou Public Security Bureau (郴州市公安局), the bureau was not
aware of any material legal impediment for the renewal of the licence for blasting operation entities
of Dishuidai so far. As advised by our PRC Legal Advisers, Chenzhou Public Security Bureau is
the competent authority for the renewal of such licence, and based on the abovementioned
confirmation, they were not aware of any material legal impediment for us to renew the licence for
blasting operation entities of Dishuidai so far. Nevertheless, in the worst case scenario that we
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could not manage to complete the renewal of the licence for blasting operation entities of Dishuidai
as scheduled, we could engage third party contractors for blasting operations at no material
difference in costs, hence it is expected that the progress of the renewal of the licence for blasting
operation entities of Dishuidai would not have any material impact on our commercialisation plan
set out in the paragraph headed ‘‘Path to commercialisation’’ in this section.
As we only had trial production at Project Dishuidai while Project Qingshuijiang and Project
Dengzhanwo had no production during the Track Record Period, we did not renew the mining
licences for Project Qingshuijiang and Project Dengzhanwo immediately upon their respective
expiry. We plan to renew our mining licences and carry out the necessary works to complete the
development of our Projects. According to confirmations issued by Chenzhou Natural Resources
and Planning Bureau (郴州市自然資源和規劃局), Qingshuijiang and Dengzhanwo are attending to
the matters related to the renewal of their mining licences and the bureau was not aware of any
material legal impediment for the renewal such licences so far. As advised by our PRC Legal
Advisers, Chenzhou Natural Resources and Planning Bureau is the competent authority for the
renewal of such licences, and based on the abovementioned confirmation, they were not aware of
any material legal impediment for us to renew such licences so far.
The total capital expenditure for our project development plan for our three Projects is
expected to be approximately [REDACTED]. For details of our project development plan, please
refer to the paragraph headed ‘‘Path to commercialisation — Stage 1 — Project development’’ in
this section.
Focusing on producing ultra high purity graphite
We plan to focus on producing ultra high purity graphite by setting up our own processing
plant to process amorphous graphite raw ore to ultra high purity graphite. Ultra high purity graphite
usually refers to graphite with a carbon content of more than 99.99%. According to the F&S
Report, the demand for ultra high purity graphite in the PRC is growing fast, and is expected to
increase from approximately RMB24.0 billion in 2021 to approximately RMB71.6 billion in 2025,
representing a CAGR of approximately 31.2%. In addition, according to the F&S Report, the
average price of amorphous graphite raw ore in China from 2018 to 2020 ranged from RMB1,595.0
per tonne to RMB1,668.0 per tonne and is expected to reach RMB1,962.6 in 2025, while the
average price of ultra high purity graphite in China from 2018 to 2020 ranged from RMB65,500 per
tonne to RMB68,600 per tonne and is expected to reach RMB86,600 per tonne in 2025.
Based on our initial construction plan, the planned new processing plant is expected to be in
full operation by 2025. The total capital expenditure for setting up our own processing plant is
expected to be approximately [REDACTED]. Our Directors are of the view that, following the
commencement of our planned new processing plant in 2025, we will be able to reduce our reliance
on third-party processing companies to process our graphite ores and that it would be more cost-
efficient to self-process ultra high purity graphite than to outsource the processing. For details of
our planned new processing plant, please refer to the paragraph headed ‘‘Path to commercialisation
— Stage 2 — Setting up our processing plant’’ in this section.
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Ramping up the graphite ore reserves at our Projects
According to the Independent Technical Report, it is estimated that there are approximately
95,000 tonnes, 47,000 tonnes and 92,000 tonnes of graphite inferred ore resources with grade of
78% at Project Dishuidai, Project Qingshuijiang and Project Dengzhanwo, respectively. As advised
by the Independent Technical Consultants, valuation for inferred ore resources are not permitted
under the Listing Rules, and we may initiate an intensive exploration programme to investigate and
upgrade our current and potential mineral resources from inferred resources to indicated or
measured resources. Our Directors are of the view that ramping up the graphite ore reserves can
better utilise our Projects and provide the basis for better utilisation of our planned new processing
plant above. The total capital expenditure for ramping up our graphite ore reserves is expected to be
approximately [REDACTED].
In the long run, we may further ramp up our graphite ore reserves through acquisition of
additional graphite projects, subject to a number of factors including satisfactory findings of
feasibility studies, expected return of acquisition and availability of capital.
PATH TO COMMERCIALISATION
We have formulated a comprehensive commercialisation scheme with a view to develop a
practicable roadmap to successful commercialisation. Our commercialisation scheme covers
different aspects from project development to setting up our own processing plant to conducting
further geological exploration of our Projects. The implementation and the timeline of our
commercialisation plan are subject to the completion of the [REDACTED] and the availability of
the [REDACTED] from the [REDACTED].
Stage 1 — Project development
According to the Independent Technical Report, all our Projects require obtaining updated
technical reports, renewing mining licences and upgrading the project development system. In
respect of Project Dishuidai and Project Qingshuijiang, it is also necessary to upgrade the roads,
and project facilities, eco-development and waste control measures (known as green project
development). In respect of Project Dengzhanwo, it is also necessary to build the project access
roads and power supply facilities.
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The following table sets forth the breakdown of timeline and estimated costs by key sub-
stages and by projects:
Estimated costs
Project Sub-stage Particulars (RMB million) Expected timeline
Upgrading roads and
project facilities,
Green project
eco-development and [REDACTED] 2022
development
waste control
measures
Paying the resource
Renewal of mining
Project Dishuidai royalties and relevant [REDACTED] 2023
licence
fees
Upgrading the project
Technical
development system [REDACTED] 2023
transformation
and rebuild
Subtotal [REDACTED]
Upgrading roads and
project facilities,
Green project
eco-development and [REDACTED] 2022–2023
development
waste control
measures
Report updates:
resource/reserves
verification report;
Technical reports development and [REDACTED] 2022–2023
utilisation report;
Project Qingshuijiang environmental impact
assessment
Paying the resource
Renewal of mining
royalties and relevant [REDACTED] 2022
licence
fees
Upgrading the project
Technical
development system [REDACTED] 2022–2023
transformation
and rebuild
Subtotal [REDACTED]
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Estimated costs
Project Sub-stage Particulars (RMB million) Expected timeline
Building access roads
Access roads [REDACTED] 2023
to the site
Setting up power
Power supply facilities [REDACTED] 2023
facilities in the site
Report updates:
resource/reserves
verification report;
Technical reports development and [REDACTED] 2023
utilisation report;
environmental impact
Project Dengzhanwo assessment
Paying the resource
Renewal of mining
royalties and relevant [REDACTED] 2023
licence
fees
Upgrading the project
Technical
development system [REDACTED] 2023
transformation
and rebuild
Subtotal [REDACTED]
Total [REDACTED]
According to the Independent Technical Report, it is estimated that the above project
development will bring Project Dishuidai, Project Qingshuijiang and Project Dengzhanwo to
production in 2022, 2023 and 2023, respectively.
Subject to the completion of the [REDACTED] and the availability of the [REDACTED] from
the [REDACTED], we plan to commence our project development plan in 2022 and commence
production at Project Dishuidai in late 2022. The following table sets forth our planned annual
production volume of graphite ores from 2022 to 2024 following the project development in the
abovementioned circumstances:
Planned Annual Production Volume
2022 2023 2024
(’000 tonnes) (’000 tonnes) (’000 tonnes)
Project Dishuidai 5 30 30
Project Qingshuijiang — 6.75 —
Project Dengzhanwo — 5.1 30
We expect that the estimated cost for project development will be funded by the
[REDACTED] from the [REDACTED]. For details, please refer to the section headed ‘‘Future
Plans and [REDACTED]’’ in this document.
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Stage 2 — Setting up our processing plant
We plan to set up our own processing plant to process amorphous graphite raw ore from our
Projects into ultra high purity graphite with the use of high temperature purification technologies,
the details of which is set out in the paragraph headed ‘‘Independent Technical Report — 6.5.1 The
principles of the new technologies’’ in Appendix III to this document. We intend to invest in the
construction of the processing plant in Chenzhou City which is close to the locations of our three
Projects. We have been looking for land suitable for setting up our planned new processing plant. It
is estimated that the planned new processing plant will cover an area of approximately 20,000 sq.
m., with full annual production capacity of approximately 100,000 tonnes of amorphous graphite
raw ore to ultra high purity graphite.
The planned new processing plant is expected to comprise two main areas, namely the
production area and staff quarter area. In order to improve our production capacity and ensure that
our production activities are safe and environmentally friendly, we plan to include two purification
workshops, a finished product packing workshop, a condensation pool, a quality inspection room
and two warehouses in the production area. For staff quarter area, we plan to build a four-storey
office building, a four-storey employee dormitory, a four-storey canteen and recreation center.
The following table sets forth the breakdown of estimated costs of setting up our planned new
processing plant by key categories:
Item Note (RMB million)
Acquisition of land use rights [REDACTED]
Construction cost 1 [REDACTED]
Purchase and installation of machinery and equipment 2 [REDACTED]
Remuneration for new staff 3 [REDACTED]
Working capital for the planned new processing plant [REDACTED]
Total [REDACTED]
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Note 1: The following table sets forth the breakdown of estimated construction cost:
(RMB million)
Production area:
— purification workshops [REDACTED]
— packing workshop [REDACTED]
— condensation pool [REDACTED]
— warehouses [REDACTED]
— quality inspection room [REDACTED]
subtotal [REDACTED]
Staff quarter area:
— office building (4 storeys) [REDACTED]
— dormitory (4 storeys) [REDACTED]
— canteen and recreation center (4 storeys) [REDACTED]
subtotal [REDACTED]
Public utilities [REDACTED]
Total [REDACTED]
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Note 2: The following table sets forth the breakdown of estimated cost for purchase and
installation of machinery and equipment:
Quantity (RMB million)
Graphite products and refractory materials 14 [REDACTED]
DC transformers 14 [REDACTED]
Flue gas desulfurisation treatment facilities 14 [REDACTED]
Total [REDACTED]
Note 3: We intend to employ additional staff members for the planned new processing plant
as follows:
Number (RMB million)
Workmen 132 [REDACTED]
Administrative staff 10 [REDACTED]
Supporting and technical staff 20 [REDACTED]
Total [REDACTED]
According to our initial construction plan, preparation work for the construction of the
planned new processing plant is expected to commence in 2023, including land use rights
acquisition, obtaining relevant construction permits etc.. The planned new processing plant is
expected to be in full operation by 2025.
As advised by our PRC Legal Advisers, we will be required to obtain additional licences in
respect of our plan to set up the planned new processing plant. For details of the additional licences
permits and approval to be obtained, please refer to the paragraph headed ‘‘Major licences, permits
and approvals — Licences to be obtained’’ in this section.
We expect that the estimated cost for setting up our planned new processing plant will be
funded by the [REDACTED] from the [REDACTED]. For details, please refer to the section headed
‘‘Future Plans and [REDACTED]’’ in this document.
Stage 3 — Further geological exploration of our Projects
According to the Independent Technical Report, the estimated graphite ore Reserve of Project
Dishuidai, Project Qingshuijiang and Project Dengzhanwo under the JORC Code as at 31 January
2022 was approximately 252,000 tonnes, 7,500 tonnes and 39,000 tonnes, respectively. According
to the Independent Technical Report, it is estimated that there are approximately 95,000 tonnes,
47,000 tonnes and 92,000 tonnes of graphite inferred ore resources with grade of 78% at Project
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Dishuidai, Project Qingshuijiang and Project Dengzhanwo, respectively. We plan to investigate and
upgrade our current and potential mineral resources from inferred resources to indicated or
measured resources by conducting further geological exploration.
We plan to conduct further geological exploration to investigate and upgrade our current and
potential mineral resources from inferred resources to indicated or measured resources by expanding
the exploration area and mining depth. Our exploration programme includes the construction of
geological exploration boreholes, obtaining professional reports and acquiring further mining rights.
We plan to commence the exploration works in 2024.
The following table sets forth the breakdown of estimated exploration costs by projects:
Additional
royalties
under the Obtaining
mining Exploration professional
licences costs reports Total
(RMB million) (RMB million) (RMB million) (RMB million)
Project Dishuidai [REDACTED] [REDACTED] [REDACTED] [REDACTED]
Project Qingshuijiang [REDACTED] [REDACTED] [REDACTED] [REDACTED]
Project Dengzhanwo [REDACTED] [REDACTED] [REDACTED] [REDACTED]
Total [REDACTED] [REDACTED] [REDACTED] [REDACTED]
As advised by our PRC Legal Advisers, we will be required to obtain additional mining
licences. For details of the additional material licences to be obtained, please refer to the paragraph
headed ‘‘Major licences, permits and approvals — Licences to be obtained’’ in this section.
We expect that the estimated cost for further geological exploration of our Projects will be
funded by the [REDACTED] from the [REDACTED]. For details, please refer to the section headed
‘‘Future Plans and [REDACTED]’’ in this document.
Economic analysis
Based on an economic analysis presented in the Independent Technical Report, at the
commodity price of approximately RMB72,200 per tonne according to the F&S Report, the net
present value (‘‘NPV’’) of our Projects is estimated to fall within the range of approximately
RMB4,110 million (at a discount rate of 12%) to approximately RMB4,680 million (at a discount
rate of 8%), with a base case of approximately RMB4,380 million at a discount rate of 10%. The
internal rate of return (‘‘IRR’’) is calculated at approximately 308%, with a payback period of
approximately 1.2 years. For details of the basis and assumptions of the calculation of NPV, IRR
and payback period, please refer to the section headed ‘‘Independent Technical Report — 7.
Economic evaluation’’ in Appendix III to this document.
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If an upside market development occurs, we will expedite the development schedule of our
Projects by pushing the capital expenditure forward to allow Project Dishuidai, Project
Qingshuijiang and Project Dengzhanwo to reach their respective full production capacity earlier
than scheduled. If a downside market development occurs, we will engage cost-cutting strategies
such as reducing the number of workers and postponing the capital expenditure schedule to allow
Project Dishuidai, Project Qingshuijiang and Project Dengzhanwo to reach their respective full
production and processing capacity later than scheduled.
Risks associated with operation of our Projects
Set out below is the summary of risk assessment regarding our Projects undertaken by the
Independent Technical Consultants:
Risk issues Likelihood Consequence Overall
Geology and Resource
1. Lack of Significant Resources Unlikely Moderate Low
2. Lack of Significant Reserves Unlikely Major Medium
3. Significant Unexpected Faulting
or Other Structure Possible Moderate Medium
Mining
4. Production Shortfall Possible Moderate Medium
5. Geotechnical or Hydrogeological
Issues Possible Moderate Medium
6. Production Pumping System
Adequacy Possible Moderate Medium
7. Underground Support and
Development Unlikely Moderate Low
8. Project Plan Failure Possible Moderate Medium
Mineral Processing
9. Power Yields Unlikely Minor Low
10. Lower Recovery Unlikely Moderate Low
11. Higher Production Cost Possible Moderate Medium
12. Poor Plant Design Unlikely Major Medium
Capital and Operating Costs
13. Project Timing Delays Possible Moderate Medium
14. Capital Cost increase Possible Moderate Medium
15. Capital Cost — Ongoing Possible Moderate Medium
16. Capital Costs Underestimated Possible Moderate Low
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Risk issues Likelihood Consequence Overall
Environmental and Social Risks
17. Surface water management and
discharges Possible Moderate Medium
18. Groundwater management and
discharges Possible Moderate Medium
19. Dust generating and gas
emissions management and
monitoring Possible Moderate Medium
20. Storage and handling of
hazardous materials Possible Moderate Medium
21. Waste generation and
management (industrial and
domestic wastes) Possible Moderate Medium
22. Rehabilitation of waste rock
stockpiles and other disturbed
areas Possible Moderate Medium
23. Potential and current
contaminated sites Possible Moderate Medium
24. Site erosion controls, sediment
entrainment and deposition Possible Moderate Medium
25. Lack of geochemical
characterisation/ARD assessment
of waste rock Possible Moderate Medium
26. Impact to the ecological system Possible Moderate Medium
The Independent Technical Consultants estimated that the overall risk of our Projects is low to
medium. For details, please refer to the paragraph headed ‘‘Independent Technical Report — 11.
Risks and opportunities’’ in Appendix III to this document.
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OUR MINERAL RESOURCES AND MINING RIGHTS
Location
During the Track Record Period and up to the Latest Practicable Date, we had three Projects
which are located in Chenzhou City, namely Project Dishuidai, Project Qingshuijiang and Project
Dengzhanwo.
Project Dishuidai located about 45 km northeast of the Linwu town and is under the
jurisdiction of Linsen village, Jinjiang town, Linwu county, Chenzhou city. There is a 7-km long
township highway, which connects Project Dishuidai to the S214 provincial road. The mining area
belongs to the mountainous, warm, and foggy climate zone of the Nanling Mountains.
Project Qingshuijiang is located 38 km southwest of Chenzhou City, and is under the
jurisdiction of Furong Township, Beihu District, Chenzhou City. There is a two-lane road leading
to Furong Township in the mining area. Project Qingshuijiang is connected to 107 National
Highway, Beijing-Zhuhai Expressway and Beijing-Guangzhou Railway. The mining area is a steep
mid-high mountainous terrain with an elevation of more than 1,000 m.
Project Dengzhanwo is located approximately 40 km southwest of Chenzhou City, and is
under the jurisdiction of Furong Township, Beihu District, Chenzhou City. There is a two-lane road
leading to Yangtouling and Anyuan villages of Furong Township and connected with the Liangtian-
Anyuan-Shatian Highway. It is connected to S214, the Guiyang-Linwu Provincial Highway,107
National Highway, Beijing-Zhuhai Expressway and Beijing-Guangzhou Railway. The mining area is
a low-to-intermediate mountainous landform with an elevation range between 500–1,095.5 m above
mean sea level.
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The map below illustrates the locations of our Projects:
N
Project Dishuidai
Project Qingshuijiang
Project Dengzhanwo
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Reserve estimates prepared in accordance with JORC Code
The statements of graphite ore Reserves of our Projects as of 31 January 2022 (being the
effective date of the Independent Technical Report) are as follows:
Chinese Ore Reserves
Reserves under JORC
Category Volume Quantity Grade Density Category
(m3 ) (‘000 tonnes) (% of FC) (t/m3 )
Project Dishuidai 122 148.2 252 68–77 1.7 Probable
Project Qingshuijiang 122 3.7 7.5 75 2.02 Probable
Project Dengzhanwo 122 19.3 39 77 2.02 Probable
According to the Independent Technical Report:
Project Dishuidai
(a) The cut-off grade was 55%; the minimum mining width was 0.6 m; the mining recovery
rate was 90%; and the dilution rate was 10%. The Independent Technical Consultants are
of the view that these were reasonable and were applied to the ore reserves estimation;
(b) The graphite mineral of Project Dishuidai is amorphous graphite, which can be purified
to ultra high purity graphite; and
(c) The area is well known by the abundance of graphite and other mineral resources.
Project Qingshuijiang and Project Dengzhanwo
(a) The cut-off grade was 55%; the minimum mining width was 0.6 m; mining recovery rate
was 90%; and the dilution rate was 10%. The Independent Technical Consultants are of
the view that these were reasonable and were applied to the ore reserves estimation; and
(b) The graphite mineral of Project Dengzhanwo and Qingshuijiang are amorphous graphite,
which can be purified to ultra high purity graphite.
For data verification by the Independent Technical Consultants, please refer to the paragraph
headed ‘‘Independent Technical Report — 4. Mineral resources’’ in Appendix III to this document.
According to the Independent Technical Consultants, there had been no material changes to
the Resource and Reserve estimation of our Projects since 31 January 2022 (being the effective date
of the Independent Technical Report) and up to the Latest Practicable Date.
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The following table sets forth the estimated operating costs for extracting the graphite as
extracted from the Independent Technical Report:
Cost Breakdown Unit Cost
Labour cost RMB/tonne 125
Supporting materials RMB/tonne 50
Explosive related materials RMB/tonne 30
Power charges RMB/tonne 15
Fuels RMB/tonne 5
Production tools and accessories RMB/tonne 20
Admin fees RMB/tonne 35
Other fees RMB/tonne 20
Total operating cost RMB/tonne 300
MAJOR LICENCES, PERMITS AND APPROVALS
Mining licences
Project Dishuidai
As at the Latest Practicable Date, we held a mining licence in respect of Project Dishuidai.
The following table sets out particulars of our mining licence for Project Dishuidai:
Name of mine: Linwu Jinjiangzhen Dishuidai Graphite Mining Co., Limited
Dishuidai graphite mine (臨武縣金江鎮滴水帶石墨礦有限公
司滴水帶石墨礦)
Holder of mining licence: Dishuidai
Mining licence number: C4310002009037120006511
Type of mineral: Graphite
Mining method: Underground mining
Approved production 30,000 tonnes/year
volume:
Mining Licence Area: 0.1407 km2
Mining depth: 200m to 800m
Period of validity: From 13 September 2017 to 13 November 2023
Issuing authority: Chenzhou Land and Resource Bureau (郴州市國土資源局)
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Project Qingshuijiang
The mining licence of Project Qingshuijiang expired in September 2021. During the Track
Record Period, Project Qingshuijiang did not have any production and was still in its development
stage.
Before the expiry of such licence, on 1 August 2021, Qingshuijiang engaged a geological
exploration technical team, which is an Independent Third Party, to prepare an inspection report on
ecological, environmental protection and restoration and it is expected that such report would be
completed in the first half of 2022. According to a confirmation issued by Chenzhou Natural
Resources and Planning Bureau (郴州市自然資源和規劃局), Qingshuijiang is attending to the
matters related to the renewal of the mining licence of Project Qingshuijiang, has engaged an expert
to prepare an inspection report on ecological, environmental protection and restoration which is one
of the documents required for the renewal of the mining licence, and the bureau was not aware of
any material legal impediment for the renewal of the mining licence of Qingshuijiang so far. After
completion of such report, we shall submit the application for renewal to the Chenzhou Natural
Resources and Planning Bureau. Our PRC Legal Advisers are of the view that Qingshuijiang should
apply for the renewal of such licence according to the relevant laws and regulations, pay the licence
fees and submit the documents required by the relevant authority. As advised by our PRC Legal
Advisers, Chenzhou Natural Resources and Planning Bureau is the competent authority for the
renewal of such licence, and based on the abovementioned confirmation, they were not aware of
any material legal impediment for us to renew the mining licence of Qingshuijiang so far. Please
refer to the paragraph headed ‘‘Regulatory Overview — Laws and regulations relating to mineral
resources’’ for the details of the materials required to be submitted for the renewal of the mining
licence.
The following table sets out particulars of the previous mining licence for Project
Qingshuijiang:
Name of mine: Chenzhou Beihu Furongxiang Qingshuijiang Tin Polymetallic
Mining Co., Limited Qingshuijiang Lead and Zinc Polymetal
Mine (郴州市北湖區芙蓉鄉清水江錫多金屬礦業有限公司清水
江鉛鋅多金屬礦)
Holder of mining licence: Qingshuijiang
Mining licence number: C4300002010123220097372
Type of mineral: Graphite, lead, tin and zinc
Mining method: Underground mining
Approved production 30,000 tonnes/year
volume:
Mining Licence Area: 1.3302 km2
Mining depth: 830m to 1,500m
Period of validity: From 23 September 2016 to 23 September 2021
Issuing authority: Land and Resource Bureau of Hunan Province (湖南省國土資
源廳)
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Project Dengzhanwo
The mining licence of Project Dengzhanwo expired in January 2018. During the Track Record
Period, Project Dengzhanwo did not have any production and was still in its development stage.
According to a confirmation issued by Chenzhou Natural Resources and Planning Bureau (郴
州市自然資源和規劃局), Dengzhanwo is attending to the matters related to the renewal of the
mining licence of Project Dengzhanwo and the bureau was not aware of any material legal
impediment for the renewal of the mining licence of Project Dengzhanwo so far. As confirmed by
our Directors, Dengzhanwo was in the process of technical upgrade. Dengzhanwo plans to submit
an application to renew the mining licence of Project Dengzhanwo after technical upgrade and
preparation of the documents required for the renewal application. While the mining licence was
expired in January 2018, in accordance with the PRC laws and regulations, Dengzhanwo had paid
the fees for mine exploiting rights (採礦權使用費) for 2018, 2019 and 2020. Our PRC Legal
Advisers are of the view that Dengzhanwo should apply for the renewal of such licence according
to the relevant laws and regulations, pay the licence fees and submit the documents required by the
relevant authority. As advised by our PRC Legal Advisers, Chenzhou Natural Resources and
Planning Bureau is the competent authority for the renewal of such licence, and based on the
abovementioned confirmation, they were not aware of any material legal impediment for us to
renew the mining licence of Project Dengzhanwo so far. Please refer to the paragraph headed
‘‘Regulatory Overview — Laws and regulations relating to mineral resources’’ for the details of the
materials required to be submitted for the renewal of the mining licence.
The following table sets out particulars of our previous mining licence for Project
Dengzhanwo:
Name of mine: Chenzhou Beihu Dengzhanwo graphite mine (郴州市北湖區燈
盞窩石墨礦)
Holder of mining licence: Dengzhanwo
Mining licence number: C4310002011037120107686
Type of mineral: Graphite and composite recycled lead and zinc
Mining method: Underground mining
Approved production 30,000 tonnes/year
volume:
Mining Licence Area: 0.2347 km2
Mining depth: 500m to 1,000m
Period of validity: From 27 January 2015 to 27 January 2018
Issuing authority: Chenzhou Land and Resource Bureau (郴州市國土資源局)
During the Track Record Period and up to the Latest Practicable Date, we did not pledge our
mining rights under our mining licences to secure any of our borrowings.
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Other major licences, permits and approvals
The following table sets forth a summary of our material licences, permits and approvals that
we have obtained for our operations and remained valid and effective as of the Latest Practicable
Date:
Project Dishuidai
Authority granting
Name of licence/permit licence/permit Date of issue Validity period Particulars
Business licence Linwu County 4 August 2020 Not applicable Licensed business
Administration for activities: mining and
Market Regulation sales of graphite
(臨武縣市場監督管理局)
Pollutant discharge permit Chenzhou Ecology and 22 April 2020 Not applicable 20.7 tonnes of Chemical
Environmental Oxygen Demand
Protection Bureau (郴州
市生態環境局)
Receipt on the Registration of Chenzhou Environmental 16 April 2020 16 April 2020 to N/A
Pollution Discharge for Protection Bureau (郴州 15 April 2025
Fixed Pollution Sources 市環境保護局)
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Project Qingshuijiang
Authority granting
Name of licence/permit licence/permit Date of issue Validity period Particulars
Business licence Market Supervision and 4 August 2020 Not applicable Licensed business
Administration activities: mining of
Bureau of Beihu lead, zinc, tin and
District, Chenzhou graphite; washing of
(郴州市北湖區市場監 lead, zinc and tin;
督管理局) and sales of lead,
zinc, tin, graphite
and other mining
products
Work safety permit Department of 17 December 2020 17 December 2020 Applicable to
Emergency to 16 December underground mining
Management of 2023 of lead, tin and zinc
Chenzhou
(郴州市應急管理局)
Work safety permit Department of 29 December 2021 29 December 2021 Applicable to operation
Emergency to 28 December of tailings
Management of 2024
Chenzhou
(郴州市應急管理局)
Receipt on the Registration Chenzhou Environmental 26 May 2020 26 May 2020 to 25 N/A
of Pollution Discharge Protection Bureau* May 2025
for Fixed Pollution (郴州市環境保護局)
Sources
Project Dengzhanwo
Authority granting
Name of licence/permit licence/permit Date of issue Validity period Particulars
Business licence Market Supervision and 9 December 2020 Not applicable Licensed business
Administration activities: graphite
Bureau of Beihu mining, sales of
District, Chenzhou graphite and graphite
(郴州市北湖區市場監 products
督管理局)
Receipt on the Registration Chenzhou Environmental 26 May 2020 26 May 2020 to N/A
of Pollution Discharge Protection Bureau* 25 May 2025
for Fixed Pollution (郴州市環境保護局)
Sources
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