Shougang Fushan Resources : Announcements and Notices - CONTINUING CONNECTED TRANSACTION - MASTER SALE AGREEMENT

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首 鋼 福 山 資 源 集 團 有 限 公 司

SHOUGANG FUSHAN RESOURCES GROUP LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 639)

CONTINUING CONNECTED TRANSACTION

MASTER SALE AGREEMENT

On 16 September 2019, the Company entered into the Master Sale Agreement with Fulong Coal, which set out the basis upon which the Seller would carry out a continuing connected transaction with the Purchaser, and the annual caps for the period from 16 September 2019 to 31 December 2019 and the two years ending on 31 December 2020 and 31 December 2021, respectively.

As at the date of this announcement, Fulong Coal is a fellow subsidiary of the holding company of a substantial shareholder of the Company's subsidiaries, being a connected person of the Company. Accordingly, Fulong Coal is an associate of a connected person of the Company under Rule 14A.13(1) of the Listing Rules and thus also a connected person of the Company. The transactions entered into between the Seller and the Purchaser under the Master Sale Agreement constitute continuing connected transactions of the Company under the Listing Rules.

As the applicable percentage ratios calculated with reference to the annual caps under the Master Sale Agreement (aggregated with historical transaction amount) exceed 1% threshold under Rule 14A.76(1)(b) but are less than 5% threshold under Rule 14A.76(2)(a) of the Listing Rules, such transactions are subject to the reporting, announcement and annual review requirements, but is exempt from the circular (including independent financial advice) and independent shareholders' approval requirements under Chapter 14A of the Listing Rules.

INTRODUCTION

The Group has been supplying coal products to Fulong Coal since July 2019 in its ordinary and usual course of business.

As the expected annual transaction amount would exceed 1% threshold under Rule 14A.76(1)(b) of the Listing Rules, on 16 September 2019, the Company and Fulong Coal entered into the Master Sale Agreement to set the annual caps and to regulate the continuing connected transactions between the Seller and the Purchaser in compliance with the Listing Rules.

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THE MASTER SALE AGREEMENT

Date

16 September 2019

Parties

The Company and Fulong Coal

Nature of the Sale Transactions

The Seller will supply the coal products to the Purchaser. During the term of the Master Sale Agreement, the Seller and the Purchaser will enter into individual sale agreements from time to time in respect of the Sale Transactions upon and subject to the terms and conditions in compliance with the Master Sale Agreement.

Term

From 16 September 2019 to 31 December 2021 (both days inclusive).

Principal terms

1. The consideration for the Sale Transactions and the relevant terms shall be stated in individual sale agreements to be entered into by the relevant parties;
2. The Sale Transactions shall be made on terms and conditions no less favorable to the Group than those available from independent third parties;
3. The pricing terms under the Master Sale Agreement will be determined based on an arm's length basis, on normal commercial terms and in accordance with the following principles:
4. 1. by reference to the prevailing market prices of the same or substantially similar products, taking into account of the price of the same or substantially similar products with comparable order quantities and quality being offered on the market;
   2. if there are not sufficient comparable transactions in (i) above, on normal commercial terms comparable to those offered to/received from independent third parties in respect of the same or substantially similar products with comparable quantities;
   3. if both (i) and (ii) above are not applicable, by reference to the average price of similar products previously supply by a party, and on normal commercial terms comparable to those offered by the relevant party to independent third parties; and
5. Consideration payable under the Master Sale Agreement will be billed in a timely and appropriate manner according to terms of the individual sale agreements to be agreed by both parties.

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HISTORICAL AMOUNT AND ANNUAL CAPS

Historical amount

The Group had been supplying coal products to Fulong Coal in its ordinary and usual course of business since July 2019. The total amounts (exclusive of VAT) of the historical transactions of the coal products supplied by the Seller to the Purchaser from 1 July 2019 to 15 September 2019 is approximately RMB13,894,000.

Annual caps

The annual caps (exclusive of VAT) of the Sale Transactions are set out below:

	For the period
	from 16	For the year	For the year
	September	ending	ending
	to 31 December	31 December	31 December
	2019	2020	2021
	RMB	RMB	RMB
Annual Caps (excluding VAT)	60,000,000	50,000,000	30,000,000

Basis of the annual caps

The annual caps are determined based on the following factors, including: (i) historical transaction amounts between the Seller and the Purchaser; (ii) the expected production volume of the relevant coal products by the Seller; (iii) the forecasted coal prices; and (iv) the expected Purchaser's demand for the relevant coal products.

REASONS FOR AND BENEFITS OF ENTERING INTO THE SALE TRANSACTIONS

The Group had been supplying coal products to Fulong Coal in its ordinary and usual course of business since July 2019. Both parties have been satisfied all completed orders including the prices, quality, delivery and 100% deposit payment terms, and have intention to continue the Sale Transactions in the long run. As the expected annual transaction amount would soon exceed 1% threshold under Rule 14A.76(1)(b) of the Listing Rules, on 16 September 2019, the Company and Fulong Coal entered into the Master Sale Agreement to set the annual caps and to regulate the continuing connected transactions between the Seller and the Purchaser in compliance with the Listing Rules.

The Directors (including independent non-executive Directors) are of the view that the Master Sale Agreement and the annual caps are carried out and determined in the ordinary and usual course of business, the terms are on normal commercial terms or better, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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INTERNAL CONTROL POLICY OF THE GROUP

To ensure that the transactions contemplated under the Master Sale Agreement will be conducted in accordance with its terms and conditions, the internal audit department of the Company will review the Sale Transactions on a periodic basis to ensure that (i) the transactions are conducted in accordance with the terms of the Master Sale Agreement; (ii) the pricing terms are in accordance with the pricing policy of the Master Sale Agreement; and (iii) the annual caps have not been exceeded.

The transactions contemplated under the Master Sale Agreement are subject to the review by the independent non-executive Directors on an annual basis, who will confirm in the annual report of the Company whether the transactions have been entered into (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms or better; and (iii) according to the Master Sale Agreement on terms that are fair and reasonable and in the interests of the Shareholders as a whole. In addition, the Sale Transactions will also be subject to the review on an annual basis by the auditors of the Company, who will confirm to the Directors as to whether there is anything which has come to their attention that causes them to believe that such continuing connected transactions: (i) have not been approved by the Board; (ii) were not, in all material respects, in accordance with the pricing policies of the Group; (iii) were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and (iv) have exceeded the annual caps.

INFORMATION REGARDING THE PARTIES

The Group is principally engaged in coking coal mining, production and sales of coking coal products in China.

Fulong Coal is principally engaged in the production, processing and sales of tar, crude benzene, sulfur, coke and fertilizer, as well as clean coal washing etc. in China. The Group's coking coal products are the raw materials for its coke production and clean coal washing.

LISTING RULES IMPLICATIONS

As at the date of this announcement, Fulong Coal is a fellow subsidiary of the holding company of a substantial shareholder of the Company's subsidiaries, being a connected person of the Company. Accordingly, Fulong Coal is an associate of a connected person of the Company under Rule 14A.13(1) of the Listing Rules and thus also a connected person of the Company. The transactions entered into between the Seller and the Purchaser under the Master Sale Agreement constitute continuing connected transactions of the Company under the Listing Rules.

The Group has been supplying coal products to Fulong Coal since July 2019 in its ordinary and usual course of business. The total amounts (exclusive of VAT) of the historical transaction of the coal products supplied by the Seller to the Purchaser from 1 July 2019 to 15 September 2019 is approximately RMB13,894,000. Such historical transactions are fully exempt under Rule 14A.76(1)(b) of the Listing Rules as the applicable percentage ratios calculated with reference to the total historical transaction amounts are less than 1% threshold. As the expected annual transaction amount would exceed the aforesaid 1% threshold, on 16 September 2019, the Company and Fulong Coal entered into the Master Sale Agreement to set the annual caps and to regulate the continuing connected transactions between the Seller and the Purchaser in compliance with the Listing Rules.

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As the applicable percentage ratios calculated with reference to the annual caps under the Master Sale Agreement (aggregated with historical transaction amount) exceed 1% threshold under Rule 14A.76(1)(b) but are less than 5% threshold under Rule 14A.76(2)(a) of the Listing Rules, such transactions are subject to the reporting, announcement and annual review requirements, but is exempt from the circular (including independent financial advice) and independent shareholders' approval requirements under Chapter 14A of the Listing Rules.

GENERAL

None of the Directors has any material interest in the above-mentioned transactions or is required to abstain from voting on the relevant resolutions of the Board.

DEFINITIONS

In this announcement, unless the context otherwise requires, the following terms shall have the following meanings:

"associates"	has the meaning ascribed to it under the Listing Rules;
"Board"	the board of directors of the Company;
"Company"	Shougang Fushan Resources Group Limited, a company
	incorporated in Hong Kong with limited liability, the shares of
	which are listed on the main board of the Stock Exchange;
"connected person(s)"	has the meaning ascribed to it under the Listing Rules;
"Directors"	directors of the Company;
"Group"	the Company and its subsidiaries from time to time;
"Fulong Coal"	Shanxi Fulong Coal Chemical Co.,Ltd* (山西福龍煤化有限
	公司), a company established in China with limited liability,
	being a fellow subsidiary of the holding company of a
	substantial shareholder of the Company's subsidiaries;
"Listing Rules"	the Rules Governing the Listing of Securities on the Stock
	Exchange;
"Master Sale Agreement"	the master sale agreement entered into between the Company
	and Fulong Coal on 16 September 2019;
"Purchaser"	Fulong Coal and/or its subsidiaries and/or the fellow
	subsidiaries of its holding company from time to time;
"RMB"	Renminbi, the lawful Chinese currency;
"Sale Transactions"	the sale transactions under the Master Sale Agreement;
"Seller"	the Company and/or its subsidiaries from time to time;

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