Shougang Fushan Resources : POSSIBLE CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE 2021 MASTER SALES AND PURCHASE 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)

POSSIBLE CONTINUING CONNECTED TRANSACTIONS

IN RELATION TO THE 2021 MASTER SALES AND

PURCHASE AGREEMENT

Independent Financial Adviser to the Independent Board Committee

and the Independent Shareholders

RAINBOW CAPITAL (HK) LIMITED

THE 2021 MASTER SALES AND PURCHASE AGREEMENT

On 17 May 2021 (after trading hours), the Company entered into the 2021 Master Sales and Purchase Agreement with Shougang Group in respect of the Sales and Purchase during the period commencing from the Completion Date and ending on 31 December 2023 (both days inclusive) unless otherwise terminated.

LISTING RULES IMPLICATIONS

The Company notices that on 15 January 2021, the Vendor and the Purchaser entered into the Shoucheng Share Sale Agreement. Pursuant to the terms of the Shoucheng Share Sale Agreement, the Vendor has conditionally agreed to sell, and the Purchaser has conditionally agreed to acquire the entire issued share capital of Excel Bond, a company indirectly holding approximately 11.88% in aggregate of all issued Shares. Completion of Shoucheng's Proposed Restructuring is subject to the fulfilment of the conditions precedent stated in the Shoucheng Share Sale Agreement.

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Prior to the completion of Shoucheng's Proposed Restructuring, Shougang Group, through its wholly-owned subsidiaries, indirectly held approximately 4.11% interest in the Company. Shoucheng, a 34.91% held associate of Shougang Group, indirectly held approximately 28.98% interest in the Company. As Shougang Group is not a connected person of the Company, the transactions with Shougang Group and/or its associates are not connected transactions of the Company for the purpose of Chapter 14A of the Listing Rules.

Upon the completion of Shoucheng's Proposed Restructuring, Shougang Group, through its wholly-owned subsidiaries, will indirectly hold approximately 15.99% interest in the Company. Shoucheng, a 34.91% held associate of Shougang Group, will indirectly hold approximately 17.10% interest in the Company. Accordingly, Shougang Group will become a substantial shareholder, and thus a connected person, of the Company and the transactions between the Group and Shougang Group and/or its associates will thereafter constitute connected transactions of the Company, and therefore the 2021 Master Sales and Purchase Agreement and the transactions contemplated thereunder will constitute continuing connected transactions of the Company, for the purpose of Chapter 14A of the Listing Rules.

As one or more of the applicable ratios (as set out in Rule 14.07 of the Listing Rules) calculated with reference to the Proposed Caps under the 2021 Master Sales and Purchase Agreement exceed 5%, the transactions contemplated under the 2021 Master Sales and Purchase Agreement are subject to the reporting, announcement, circular, annual review and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.

GM

The Company will convene a GM to seek the Independent Shareholders' approval on the 2021 Master Sales and Purchase Agreement and the transactions contemplated thereunder. Any other parties who are involved or interested in the 2021 Master Sales and Purchase Agreement shall abstain from voting on the relevant resolution(s) to be proposed at the GM.

The Independent Board Committee comprising all the independent non-executive Directors has been formed by the Company to consider whether the terms of the 2021 Master Sales and Purchase Agreement and the transactions contemplated thereunder, including the Proposed Caps, are fair and reasonable, and are in the interests of the Company and the Shareholders as a whole, and to advise the Independent Shareholders in respect of the same. Rainbow Capital has been appointed by the Company as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

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As Mr. Ding Rucai is currently a director of the Company and certain subsidiaries of Shougang Group, he might be considered to be materially interested in the transactions contemplated under the 2021 Master Sales and Purchase Agreement and has abstained from voting on the Board resolution(s) approving the transactions contemplated under the 2021 Master Sales and Purchase Agreement. Save for Mr. Ding Rucai, none of the Directors have any material interest in the 2021 Master Sales and Purchase Agreement, and therefore they are not required to abstain from voting on such resolution(s).

DESPATCH OF CIRCULAR

A circular containing, among other things, (i) further details about the 2021 Master Sales and Purchase Agreement; (ii) the recommendation of the Independent Board Committee in relation to the 2021 Master Sales and Purchase Agreement; (iii) a letter of advice from Rainbow Capital to the Independent Board Committee and the Independent Shareholders in relation to the 2021 Master Sales and Purchase Agreement; and (iv) a notice convening the GM, is expected to be despatched to the Shareholders in accordance with the requirements of the Listing Rules on or before 8 June 2021.

Shareholders and potential investors should note that the 2021 Master Sales and Purchase Agreement is subject to Independent Shareholders' approval and therefore may or may not proceed. Shareholders and potential investors should exercise caution when dealing in the Shares.

INTRODUCTION

The Group is principally engaged in coking coal mining, production and sales of coking coal products in the PRC. The Group has been supplying coking coal products to Shougang Group and/or its associates since 2010 and purchasing steel products from Shougang Group and/or its associates since 2015 in its usual and ordinary course of business. In addition, the Group has engaged Shougang Group and/or its associates as contractors for certain construction, exploration and design projects, etc. in its usual and ordinary course of business.

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As at the date of this announcement, such transactions do not constitute connected transactions of the Company under Chapter 14A of the Listing Rules. Such transactions will become connected transactions of the Company following the completion of Shoucheng's Proposed Restructuring. As it is expected that the Company will continue to conduct such transactions on or after the Completion Date, on 17 May 2021 (after trading hours), the Company and Shougang Group entered into the 2021 Master Sales and Purchase Agreement to regulate the possible continuing connected transactions between the Group and Shougang Group and/or its associates for the period commencing from the Completion Date and ending on 31 December 2023 (both days inclusive). The Proposed Caps for the transactions contemplated under the 2021 Master Sales and Purchase Agreement will become effective on the Completion Date in compliance with the Listing Rules.

THE 2021 MASTER SALES AND PURCHASE AGREEMENT

The principal terms of the 2021 Master Sales and Purchase Agreement are set out below:

Date

17 May 2021

Parties

1. the Company; and
2. Shougang Group

Nature of the transactions

1. The Group will supply the Fushan Products to Shougang Group and/or its associates; and
2. Shougang Group and/or its associates will supply Shougang Group Products to the Group.

Conditions precedent

The obligations of the parties to the 2021 Master Sales and Purchase Agreement are conditional upon (i) approval of the 2021 Master Sales and Purchase Agreement and the Proposed Caps by the Independent Shareholders in compliance with the Listing Rules at the GM; and (ii) the completion of Shoucheng's Proposed Restructuring.

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If the above conditions precedent under the 2021 Master Sales and Purchase Agreement are not satisfied on or before 31 December 2021 or such other date as the parties may agree in writing, the 2021 Master Sales and Purchase Agreement will terminate automatically and no party will be entitled to any rights or benefits or be under any obligations under or in respect of the 2021 Master Sales and Purchase Agreement.

Term

Subject to the satisfaction of the conditions precedent, the term of the 2021 Master Sales and Purchase Agreement will commence from the Completion Date and ending on 31 December 2023 (both days inclusive).

Pricing terms

The pricing terms under the 2021 Master Sales and Purchase Agreement will be determined based on an arm's length basis, on normal commercial terms and on terms no less favourable to independent third parties and in accordance with the following principles:

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 order quantities; and
3. if both (i) and (ii) above are not applicable, by reference to the average price of similar products previously supplied by a party, and on normal commercial terms comparable to those offered by the relevant party to independent third parties.

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