MAJOR TRANSACTIONACQUISITION OF MAGNETITE MINING RIGHTS IN...

MAJOR TRANSACTION
ACQUISITION OF MAGNETITE MINING RIGHTS IN WESTERN AUSTRALIA
Under the transaction agreed, the Company will have, potentially, mining rights over 6 billion tonnes of magnetite ore over the Mining Area in the western Pilbara region of Western Australia located near the mouth of the
Fortescue River. The mining rights will be held through companies the Company may acquire which hold sub-leases (ie sub mining rights) from the Seller, an independent third party, which in turn holds the mining rights
direct from the Western Australian Government.
On 31 March 2006, a wholly owned subsidiary of the Company agreed to acquire from the Seller the entire interest in Sino-Iron (which has the right to extract 1 billion tonnes of magnetite ore in the Mining Area) for
US$215 million (approximately HK$1,677 million). On the same day, another wholly-owned subsidiary of the Company agreed to, conditional upon additional 1 billion tonnes of magnetite ore resources being proven by
the Company after it completes an agreed drilling program in the same area, acquire from the Seller the entire interest in Balmoral (which will have the right to extract 1 billion tonnes of magnetite ore in the Mining Area)
for US$200 million (approximately HK$1,560 million), adjusted for Inflation.
In addition, subject to completion of both the Sino-Iron Acquisition and the Balmoral Acquisition, the Company will enter into the China Project Option Agreement whereby it will be granted the Options to acquire up to
an additional 4 billion tonnes of magnetite ore (each 1 billion tonnes for a consideration of US$200 million, adjusted for Inflation) exerciseable for, depending on the first option being exercised within 4 years after
completion of the Sino Iron Acquisition and the Balmoral Acquisition, up to 10 years from completion of the Sino-Iron Acquisition. The Company will undertake a further drilling obligation to locate the additional 4
billion tonnes of magnetite ore on top of the 2 billion tonnes to be available to Sino-Iron and Balmoral (or such lesser amount as is located under the further drilling obligation).
Sino-Iron and Balmoral will arrange the financing of the construction of the infrastructure for the Project. The estimated capital expenditure payable for Sino-Iron (ie the first 1 billion tonnes of magnetite ore) is US$1,370
million (approximately HK$10,686 million), and the estimated capital expenditure payable for Balmoral (ie the second 1 billion tonnes of magnetite ore) will be US$1,100 million (approximately HK$8,580 million).
The Acquisition of Mining Rights enables the Group to explore for magnetite ore to ensure a constant and sufficient supply of raw materials for the furtherance of its special steel manufacturing business and also to invest
in a magnetite ore mining business.
The Company intends to cooperate with partners of PRC background with expertise in mining and requiring constant supply of iron ore or related product to participate in the Project.
The applicable percentage ratios pursuant to Rule 14.04(9) of the Listing Rules for the Acquisition of Mining Rights exceed 25% but are under 100% and therefore the Acquisition of Mining Rights constitutes a major
transaction for the Company under Chapter 14 of the Listing Rules and is subject to the reporting, announcement and shareholders’ approval requirements of Chapter 14 of the Listing Rules.
Shareholders of the Company holding in aggregate over 50% of the issued shares of the Company have indicated that they approve the Acquisition of Mining Rights and the Company will procure the signing of a written
shareholders’ approval, failing which a shareholders’ meeting will be convened for approving the Acquisition of Mining Rights. A circular complying with both Chapter 14 and Rule 18.09 of the Listing Rules and
containing, among other things, further details of the Acquisition of Mining Rights will be despatched to the shareholders of the Company as soon as practicable.