Sino Plus Graphite Holdings Co., Ltd Mineral Assets ...

Sino Plus Graphite Holdings Co., Ltd

Mineral Assets controlled by Sino Plus Graphite HoldingsCo., Ltd in the People’s Republic of China

Independent Technical Report

RESPEC, Inc

3824 Jet Drive. Rapid City, South Dakota 57703, USA

Contact: [email protected]

Tel: (+1-859) 247 1148

Website: www.respec.com

AP Appraisal Limited

22/F, West Exchange Tower, 322 Des Voeux Road

Central, Sheung Wan, Hong Kong

Contact: [email protected]

Tel: (852) 2218 5180

Website: www.apa.com.hk

[Date]

APPENDIX III INDEPENDENT TECHNICAL REPORT

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THEINFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED ‘‘WARNING’’ ONTHE COVER OF THIS DOCUMENT.

Independent Technical Report of

Mineral Assets controlled by Sino Plus Graphite Holdings Co., Ltd in the People’s Republic of

China

Report Prepared for

Sino Plus Graphite Holdings Co., Ltd

Compiled by

Edmundo J. Laporte

RESPEC, Inc

Deliang Han

RESPEC, Inc

Baolong Zhao


Paul Hung



– III-2 –


To: Board of Directors

SINO PLUS GRAPHITE HOLDINGS CO., LTD

Room A, 12/F

ZJ 300

300 Lockhart Road

Wan Chai

Hong Kong

Honestum International Limited

Unit 604, 6/F

Nam Wo Hong Building

148 Wing Lok Street

Sheung Wan

Hong Kong

Re: Independent Technical Report

Dear Sirs,

Sino Plus Graphite Holdings Co., Ltd (the ‘‘Company’’ or the ‘‘Instructing Party’’) commissioned

RESPEC, Inc. (“RESPEC”) and AP Appraisal Limited (‘‘APA’’) (collectively, ‘‘RESPEC & APA’’

or the ‘‘Independent Technical Consultants’’) to jointly prepare an independent technical report (the

‘‘Independent Technical Report’’ or the ‘‘Report’’) for three graphite projects (the ‘‘Projects) of the

Company, which are located at Hunan Province, the People’s Republic of China (the ‘‘PRC’’ or

‘‘China’’).

The Independent Technical Consultants prepared the Report in accordance with the Australasian

Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code,

2012 Edition) which is the code adopted by the Australasian Institute of Mining and Metallurgy

(the ‘‘AusIMM’’) and is binding upon all the members of the Society for Mining, Metallurgy &

Exploration (the ‘‘SME’’) and AusIMM, and the Listing Rules, namely Chapter 18 and the relevant

guidance letters published by the Stock Exchange requiring Mineral Resource and Ore Reserves

estimates to be submitted under the JORC Code or similar guidelines.

Report Date: [Date]

Effective Date: 31 January 2022


– III-3 –


EXECUTIVE SUMMARY

The Company commissioned the Independent Technical Consultants to prepare the Report for the

Projects which are located at Hunan Province, the PRC.

The Independent Technical Consultants prepared the Report in accordance with the Australasian

Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code,

2012 Edition) which is the code adopted by the Australasian Institute of Mining and Metallurgy

AusIMM and is binding upon all the members of the SME and AusIMM, and the Listing Rules,

namely Chapter 18 and the relevant guidance letters published by the Stock Exchange requiring

Mineral Resource and Ore Reserves estimates to be submitted under the JORC Code or similar

guidelines. The scope of work includes the assessments of following aspects:

. Review operating licences, permits and other relevant requirements for the project operations;

. Review the geology and exploration works carried out in the Projects;

. Review and estimate the Mineral Resources and Ore Reserves of the Projects;

. Review the historic operations carried out in the Projects;

. Review the environmental and operational safety, health requirements and performance of the

Projects;

. Forecast the operating costs, capital requirements, and economic analysis of the Projects; and

. Make comments and recommendations for the project development.

The work first started in July 2020 in the case of RESPEC and subsequently in March 2021 after

signing services contracts with the Company. The Independent Technical Consultants have been

collecting data and information materials relevant to the Projects, including digital and/or hard

copies of the previous and current geological, technical, and operational Reports. The Independent

Technical Consultants also obtained and reviewed information of the relevant approvals and permits

for the mining operations of the three Projects, information regarding to management,

environmental protection, and health and safety management of the Projects issued or approved by

the bureaus and government departments, as well as the management guidelines made for the

mining companies for the aspects mentioned above.


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The Independent Technical Consultants conducted site visits in August 2018, March 2021 and July

2021 to review and investigate the site condition of the Projects.

The Aspiration of Sino Plus Graphite Holdings Co., Ltd

The Company was incorporated in 2020 and is the ultimate holding company of the three

subsidiaries owning the Projects. The subsidiaries of the Company are graphite mining companies

in the PRC.

The Company recognised the opportunities of the broad applications of the ultra high puritygraphite products in the modern high-tech field years ago and acquired the Projects in Chenzhou

City of Hunan Province, being one of the best amorphous graphite mineralisation zones in China or

even in the world. The graphite minerals extracted from this zone normally have high fixed carbon

contents (75% ~ 85%) and very low sulphur contents. However, the amorphous graphite is hard to

process and purify to higher grade by traditional technologies and/or processes due to its micro-size

characteristics and is severely undervalued by the graphite industry until finding the new solutionsof purification.

The Independent Technical Consultants understand the above synopsis of logic, and too, the fact

that the Company has obtained a controlling interest in three mining companies owning the three

graphite Projects, which are all located in the graphite mineralisation zone of Chenzhou City. Thesethree mining companies are:

. Chenzhou Beihu Dengzhanwo Graphite Mining Co., Limited (‘‘Dengzhanwo’’)(The Project owned by Dengzhanwo is known as the ‘‘Project Dengzhanwo’’);

. Chenzhou Beihu Furongxiang Qingshuijiang Tin Polymetallic Mining Co., Limited(‘‘Qingshuijiang’’)(The Project owned by Qingshuijiang is known as the ‘‘Project Qingshuijiang’’);

. Linwu Jinjiangzhen Dishuidai Graphite Mining Co., Limited (‘‘Dishuidai’’)(The Project owned by Dishuidai is known as the ‘‘Project Dishuidai’’).

Brief Summary of the Three Projects

Project Dengzhanwo and Project Qingshuijiang are located approximately 38 to 40 km southwest

from Chenzhou City, and under the jurisdiction of Furong Township, Beihu District, Chenzhou

City. Project Dengzhanwo and Project Qingshuijiang are only a few kilometres away from each

other.

Project Dishuidai is under the jurisdiction of Linsen village, Jinjiang town, Linwu county,

Chenzhou City. It is located approximately 72 km southeast from Chenzhou City. Project Dishuidai

is located approximately 20 km northwest of the other two Projects, namely Project Dengzhanwo

and Project Qingshuijiang. The famous nation owned Lutang Amorphous Graphite project is justapproximately 15 km away northwest from Project Dishuidai. All of the three Projects are located


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within 50 km circle the amorphous graphite mineralization zone centred by Lutang Amorphous

Graphite project. Traveling to Chenzhou City from Hong Kong is easy and quick by crossing the

board to Shenzhen and then take a 2-hr China High-speed Railway.

Dengzhanwo became a subsidiary of the Company in January 2016. The current status of the

mining licence is shown in APPENDIX A. The mining licence area is 0.2347 km2, with elevation

between +1,000 m and +500 m, and granted a production capacity of 30 ktpa. The mining licence

for Dengzhanwo was expired on 27 January 2018, which is currently under renewal process.

Qingshuijiang became a subsidiary of the Company in January 2016. Project Qingshuijiang was

formed by the integration of three standalone Projects: Qingshuijiang No. 1 and No. 2 Projects and

the Fengyuan Project. The current status of the mining licence is shown in APPENDIX A. The

mining licence area is 1.3302 km2, with elevation between +1,500 m and +830 m, and granted a

production capacity of 30 ktpa. The mining licence for Qingshuijiang was expired on 23 September

2021, which is currently under renewal process.

Dishuidai became a subsidiary of the Company in June 2016. The current status of the mining

licence is shown in APPENDIX A. The mining licence area is 0.1407 km2, with elevation between

+800 m and +200 m, and granted a production capacity of 30 ktpa. The mining licence for

Dishuidai is valid until 13 November 2023.

Exploration and Mining History

It has been reported that from 1956 to 1958, the Nanling Geological Team conducted a regional

geological survey at a scale of 1:200,000 for the Guiyang section as the formal exploration for the

area, which included the current Project Dengzhanwo and Project Qingshuijiang licence areas.

Records indicate that between 1962 and 1965, a Regional Survey Team of Hunan Province

conducted a review and follow-up work on the above-mentioned regional survey. In 1982, the Team

473 of the Hunan Provincial Geological Survey and Mineral Resources conducted a sediment

survey of the water system. The reviewed documents indicated that various geochemical anomalies

were defined.

From 1988 to 1990, the Hunan Southern Geological Team under the Geological Survey and Mineral

Resources of Hunan Province Reportedly carried out a 1:50,000 regional explorations for the

mineralized region and compiled the 1:50,000 Yongchun-Yizhang (G-49-94-B, F-49-94D) Regional

Geological and Mineral Investigation Report. It has been reported that, from 1999 to 2006, the

Hunan Southern Geological Survey Institute conducted a general investigation of tungsten-tin

mineral resources focusing the southern Qinling rock mass in cooperation with the national land

and resource surveys.

The relationship between magmatic rocks, structure and mineralisation in the project area was

initially identified through the above-mentioned work. Additionally, a few new iron, tin, lead and

zinc deposits were discovered. Even though the above geological work did not provide a detailed

understanding of the graphite projects in the area at the time, it provided the fundamental

geological information for the assessment.


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It has been reported that, from August 1978 to August 1985, the Hunan Southern Geological Team

under the Geological Survey and Mineral Resources of Hunan Province conducted a detailed

geological survey for graphite mineralisation in the Heye Mining Area of Guiyang County and

completed the detailed geological report of graphite in the Heye Mining Area of Guiyang County in

August 1985. Project Dishuidai is located about 2 km south of the exploration area of the Heye

Graphite Project, the graphite mineralisation was found extended from Heye to Project Dishuidai.

The history of mining for Project Dengzhanwo and Project Qingshuijiang is very similar. It has

been reported that small-scaled mining activities of private individuals in the area began in 2004.

Reportedly, mining in Project Dengzhanwo area started as a few isolated pits. By the end of 2004,

there were 15 mining pits developed in an area of 0.3 km2. Records indicate that adit mining

reached a length of more than 40–200 metre in 2005, with 7 mining adits and a total 100,000 tons

of graphite ore produced. During that chaos time, a series of actions were taken to get mining under

control by the relevant governmental agencies.

Project Qingshuijiang was formed in 2009 by an integration of three projects, namely the

Qingshuijiang No. 1 Project, the Qingshuijiang No. 2 Project, and the Fengyuan Project. The

former Qingshuijiang No. 1 Project and the No. 2 Project were built in 2006, and the original

Fengyuan Project was built in 2004.

Project Dishuidai was founded in 1985 and put into production in March 1994.

Geology and Mineralisation

As the most active period for ore-forming in the region, the Yanshanian period is characterised by

the formation of the north-north-east and north-east fault structures, represented by the Tianji-

Tangguanpu fault and the Paojinshan-Chashan fault. The structures are often accompanied by a

series of magmatic intrusions and are closely associated with the mineralisation of the region as the

main ore-conducting or ore-bearing structures. Frequent magmatic activities occurred because of the

second stage intrusions during the Early Yanshan period, and the main intrusive rocks appear in

form of rock strains or branches. The lithology is mainly medium fine-grained iron-lithium mica

monzonitic granite. The sequence is characterised by large amount enriched elements in high

intensity, and especially a combination of rare and coloured elements. The local enrichment of rare

elements such as Niobium, Tantalum, Lithium, Rubidium, and Caesium can constitute industrial ore

bodies. The enrichment and accumulation of Tungsten, Tin, Lead, Zinc and other elements is

remarkable, providing a rich material source for mineralisation. In addition, the granite porphyries

of the late Yanshanian, distributed as intrusive veins in an east-west direction, contain a higher tin

content and are capable to form large porphyry tin-polymetallic deposits via local enrichment.

It has been reported that tock outcrops in the region consists of Hutian Group of the Middle-Upper

Carboniferous, Qixia Formation and Dangchong Formation of the Lower Permian, Longtan

Formation of the Upper Permian, and the Quaternary. However, the exposed strata in the designed

mining area are simple, which only include Lower and Upper Longtan Formation of the Upper

Permian, and the Quaternary. The Upper Longtan Formation of the Upper Permian (P2l2) consists

of strongly metamorphic fine-grained quartz sandstone-quartzite, pyrite-nodule-bearing quartz mica


– III-7 –


hornfels, strongly andalusited and hornfelized mudstone, strongly metamorphic siltstone,

metamorphic quartz siltstone with strongly graphitized shale to metamorphic siltstone with

graphitized andalusited hornfels or quartz tourmaline hornfels. The degree of metamorphism

becomes stronger where it is close to the granite body. The formation is about 250 m thick

containing two layers of graphite mineralisation and one lead-zinc mineralized seam which is not

consistent laterally.

Strata of the mining area have undergone thermal metamorphism due to the intrusion of the Qinling

granite, forming different degrees of metamorphic rocks and deposits. Major rock types related to

the graphite deposits in the mining area are strongly metamorphic quartz-hornfelized mudstone to

quartz-mica hornfels, biotite-andalusite hornfelized mudstone to biotite-andalusite-chiastolite

hornfels, metamorphic siltstone, sandstone and quartzite, and siliceous rock with interbedded

amphibole-hornfelized siliceous rock to marbleized siliceous limestone, etc.

Graphite ore beds were formed by thermal metamorphism of interbedded coal seams in the Longtan

Formation. Based on available data of the area, graphite mineralisation was formed by

recrystallisation of hornfels and anthracite. Graphite mineralisation of anthracite is typical in area

with a moderate hornfelisation.

Generally, as one of the important signs of mineralisation in this area, a stronger silicification and

chloritisation indicates a better mineralisation. Silicifications mainly develop along the fractured

zone of a fault. Chloritisations fall into primarily the low temperature hydrothermal alteration

category and appear mainly in fractured zones or towards the fault boundary, with various degree of

the green colour. Chloritisations occurring in the high temperature stage also has a certain

relationship with the lead, zinc and tin mineralisation.

Graphite deposits in Project Dengzhanwo area are formed by thermal metamorphism of the

interbedded coal seams in the Longtan Formation. Ore bodies are controlled by coal-bearing strata

of the Longtan Formation. The genetic style of the deposits is a metamorphic type of coal-bearing

clastic rocks, and the industrial type of the deposits is amorphous graphite deposits. There are two

graphite seams as major mining targets according to available resource report and prospecting data,

which are associated with lead and zinc mineralisation as well as silver deposits in the project area.

The graphite deposits are distributed in the Upper Longtan Formation, occurring as relatively

consistent layers between the biotite-andalusite mudstone and quartz sandstone.

The metal ore body in Project Qingshuijiang area is located in the NE-trending fault or the inter-

layered fracture zone. The shape, occurrence and scale of the ore body are strictly controlled by the

fracture zone. Mineralisation come from magmatic hydrothermal fluid, superimposed with multiple

enrichments in a favourable fractured zone environment. There are clear boundaries between the ore

body and the host rock. Graphite deposits in this area are also formed by thermal metamorphism of

the interbedded coal seams in the Longtan Formation. Orebodies are controlled by coal-bearing

strata of the Longtan Formation. The genetic style of the deposits is a metamorphic type of coal-

bearing clastic rocks, and the industrial type of the deposits is amorphous graphite deposits.


– III-8 –


Similarly, graphite ores in Project Dishuidai area mainly exist in the coal-bearing (or graphite)

strata in the upper part of the Permian Longtan Formation, and they belong to the metamorphic

soil-like (or cryptocrystalline, or amorphous) graphite deposits which are from coal-bearing clastic

rocks.

Resources and Reserves

Based on the definition of Resources under the JORC Code, the Independent Technical Consultants

have verified the data of mineral resources/ore reserves reported in the previous geological

exploration works and the verification reports for mineral resources/reserves prepared for the three

mining Projects, including the shape and measurement, and the physical characteristics of the

mineral ore bodies/seams to estimate the volumes of the mineral deposits, determining an average

grade for each resource blocks to be estimated, and verifying the measurements of the densities.

The following table shows the results of mineral reserves estimated for Project Dishuidai, Project

Dengzhanwo and Project Qingshuijiang.

TABLE EC-1 Statement of Graphite Ore Reserves of Project Dishuidai as of 31 January 2022

Name of the Project

ChineseReservesCategory Volume (m3) Quantity (kt)

Grade(% of FC)

Density(t/m3)

Ore Reservesunder JORCCategory

Project Dishuidai 122 148.2 252 68~77 1.7 Probable

TABLE EC-2 Statement of Graphite Ore Reserves of Project Dengzhanwo and Project

Qingshuijiang as of 31 January 2022

Name of the Project


Grade(% of FC)

Density(t/m3)


Project Dengzhanwo 122 19.3 39 77 2.02 Probable

Project Qingshuijiang 122 3.7 7.5 75 2.02 Probable

There had been no material changes to the Resource and Reserve estimation of the Projects since 31

January 2022 and up to [21 February 2022].


– III-9 –


Project Development Plan and Mining Methods Employed

As stated in the reports of ‘‘Development and Utilisation Plan’’ for the three Projects, the

Independent Technical Consultants found that the project development modes and the miningmethods used for the three Projects are similar. The typical project development system for the

three Projects are adits (main) combined declines. The topography of the area is very suitable for

using adits to access the underground mineral deposits. The main adits are used for transportation

of ores, equipment, and workers, and used for fresh air inflows fanned into working places.

Normally, an adit services the ore reserves above the level of this adit, and if needed, declines

maybe developed to assist accessing the ore reserves under the level of the adit. In addition, one ormore ventilation adits are also required for forming a ventilation system for the project

development.

The mining methods used for the three Projects are typical Short-Wall Caving Mining Method for

the mining of graphite ore seams as similar to that used for narrow coal seams’ mining in the coalmining industry in China. For the metal mineral deposits at Project Dengzhanwo and Project

Qingshuijiang, since the veins are mostly narrow-wide and deep-inclined in nature, the suitable

mining method for those veins is Short-Hole Shrinkage method.

The Independent Technical Consultants noted that the three mining Projects have been in

maintenance status. Project Dengzhanwo and Project Qingshuijiang were idle for some years.Project Dishuidai had a trial production. To bring the Projects to a normal production capacity,

investment in both project developments and explorations are needed imminently.

The Independent Technical Consultants were provided by the Company the details of the capital

costs for the first stage development of the three Projects, namely Project Dengzhanwo, ProjectQingshuijiang and Project Dishuidai. The total budget of the capital requirement for the three

Projects is approximately [REDACTED], in which Project Dengzhanwo takes approximately

[REDACTED], Project Qingshuijiang takes approximately [REDACTED] and Project Dishuidai

takes approximately [REDACTED].

The Independent Technical Consultants estimate the total direct operating cost for extracting of thegraphite deposits from Project Dishuidai is around RMB300/t at current economic and market

situations. Project Dengzhanwo and Project Qingshuijiang have similar project development style

and mining conditions, direct operating costs for mining of the graphite ore seams from the two

Projects are similar as of RMB300/t.

Mineral Processing and Graphite Purification

Amorphous graphite is a kind of crystal with a diameter less than 1 μm, with a specific surface area

between 1–5 m2/g. The carbon content of raw ore of amorphous graphite is generally higher than

that of crystalline graphite. Natural pure graphite is very rare, often associated with andalusite,

mica, kaolin, etc. The carbon content of most amorphous graphite is 60%–85%, the ash content is15%–22%, the volatile content is 1%–2%, and the moisture content is 2%–7%. The grade of a few

raw ores can reach more than 90%.


– III-10 –


According to the physical and chemical changes in the impurity removal process, the beneficiation

and purification methods of amorphous graphite can be divided into: 1) wet purification method,

including flotation purification method, acid-base purification method and hydrofluoric acid

purification method; 2) fire purification method, including chlorination purification method andhigh temperature impurity removal method.

Flotation method is one of the most used beneficiation methods, however, the purity of graphite

purified by flotation method is limited, and the concentrate grade is generally 85%–90%, mostly

medium carbon graphite. Therefore, the flotation method is mainly used for the preliminary

purification of amorphous graphite.

The acid-base purification method is widely used in Inner Mongolia, Shandong and other places.

The advantages of this method are less one-time investment, strong process adaptability and general

equipment. Compared with flotation method, the product obtained by this method has higher purity,

generally 99% high carbon graphite, but the purity cannot meet the requirements of 99.9%.

Since silicates can generally be dissolved by hydrofluoric acid, and graphite has good acid

resistance and corrosion resistance, hydrofluoric acid is generally used to purify graphite. Foreign

scholars have studied that the carbon content of graphite powder with 93% carbon content can be

purified to 99.9% by reacting acid ammonia fluoride or ammonia hydrogen fluoride with graphite.

The advantages of hydrofluoric acid (‘‘HF’’) purification are: high purification efficiency, highproduct purity, low energy consumption, little impact on product performance, etc. However, HF is

volatile and toxic, so strict safety protection and wastewater treatment system must be provided in

the production process. It has the disadvantages of complex process, high cost, strong corrosivity

and large environmental pollution, so it is difficult to carry out large-scale production.

Chlorination roasting method is a common fire purification method. Its principle is that impurities

such as silicate, aluminosilicate and quartz in graphite can be decomposed into oxides such as

silica, alumina, iron oxide and calcium oxide under high temperature heating conditions.

Chlorination roasting method has the advantages of energy saving, high purification efficiency and

high recovery. However, the process conditions are unstable, the purification cost is high, and the

tail gas is difficult to treat, resulting in serious air pollution.

The normal high-temperature purification method is using the high-temperature resistance of

graphite and the difference in melting boiling point between graphite and impurities. After reaction

occurs for a period in a roasting furnace, impurities can be gasified and overflow from graphite to

achieve the purpose of impurity removal. The product purified by high temperature method belongsto ultra high purity graphite with carbon content of more than 99.99%, but its method also requires

high purity of raw materials, and the carbon content must be more than 99%. The disadvantage is

that the normal high temperature method is limited to the purification of high purity raw materials

and requires a specific high temperature furnace, resulting in disadvantages such as high

investment, high production cost and strict requirements for operation technology. In addition, the

huge production cost caused by high-temperature power consumption also makes the applicationfield of this method extremely limited. Only when there are strict requirements on the carbon

content of graphite products, the high-temperature method can be used for small batch production

of graphite.


– III-11 –


Graphite is becoming a very important non-metallic strategic resource. How to purify, process and

utilize it effectively deserves the attention in the graphite industry field. Over the years, researchers

from China and other countries have been focusing on finding new solutions of purifying graphite

raw materials to an ultra-high grade level but with acceptable lower cost and stable productionprocesses. The good news is that technology renovations have achieved a better way of taking

advantages of both the Wet and the Fire purification methods. The Company is one of the

innovators in this field.

The principle of the purifying process of the Company technologies is also to take the advantage of

the high melting point of graphite, which is one of the highest melting and boiling points in nature,and much higher than that of impurity silicate. Using the difference of their melting and boiling

points, put the pretreated graphite materials into the graphitized crucible, and heat it to 1,500°C,

2,500–2,800°C, and 2,800–3,200°C in three sections of a furnace system with specific instruments

and equipment under a certain atmosphere, such as adding certain amount of HF and HCl, which

makes the impurities reacting, gasify and escape out of the graphite materials step by step, andfinally achieve the goal of purification. And importantly, the Company’s technologies have

advantages of very low operating costs and stable production process, which could be the core

value of the whole graphite project.

Economic Analysis

Information from the F&S Report indicates that the market price of the ultra high purity graphite is

about RMB72,200/t in 2021, whereas the market price of graphite ore is about RMB1,705.9/t in

2021. The Independent Technical Consultants estimated the mining costs of RMB300/t amorphous

graphite ore produced, the transportation cost of RMB150/t, and the VAT & other tax of

RMB32,890/t. The cost advantage will keep the Company at a good competition position in themarket. The Company’s business model of securing graphite raw materials by owning graphite

mining Projects is clearly an advanced strategy.

Safety and Environmental Assessment

The Independent Technical Consultants have assessed safety and environmental control andmanagement issues relating to the developments and operations of the three mining Projects.

Independent Technical Consultants have firstly checked the work safety permits issued to the three

Projects. The Independent Technical Consultants have reviewed the work safety permits for the

three Projects. Qingshuijiang has a valid work safety permit valid until December 2023. Dishuidai

had a valid work safety permit valid until January 2022, and Dishuidai is attending to the mattersrelated to the renewal of the work safety permit. For Dengzhanwo, the application of work safety

permit is under way. The Independent Technical Consultants were told that the renewal applications

of work safety permit for Project Dengzhanwo has been a normal work for the Company to carry

out, which is made together with the applications of renewing mining licence. The Independent

Technical Consultants have not found any negative safety or environmental issues interfering the

operations of the three Projects.


– III-12 –


The Independent Technical Consultants have experienced the strict safety management supervision

and controls by the local government agencies when having site visit at Project Dishuidai, which is

good news for the Company to mitigate the safety related risks of the project developments and

operations.

Independent Technical Consultants’ Recommendations and Conclusions

The Independent Technical Consultants concluded that:

. Project Dengzhanwo, Project Qingshuijiang and Project Dishuidai are all located within thefamous amorphous graphite rich mineralisation zone of Chenzhou City, which have

opportunities to expand exploration and mining boundaries and increase greatly in resources

and reserves of graphite minerals and deposits.

. Even though the three Projects have been granted mining licences, the process of the project

integration and tightening control measures have delayed the development and upgradingprocesses of the Projects, which lead to the three mining Projects having been on trial

production (Project Dishuidai) or on maintenance status (Project Dengzhanwo and Project

Qingshuijiang) waiting for capitals inputs for re-development or upgrading.

. The development system for the three Projects is simple, i.e., all the Projects using aditcombined declines, which has advantages of less capital requirement and easy for operational

management. Both mineral ore bodies/seams and surrounding rocks are relatively stable,

which are instrumental in the mining operations underground. Traditional mining methods of

Short-Wall Caving and Short-Hole Shrinkage Stoping are suitable for extracting graphite ore

seams and narrow veins of lead-zinc-tin polymetallic deposits. Both mining methods have

good recovery and dilution control advantages.

. The mining operating cost of RMB300/t is reasonable and acceptable against the current

market conditions. The initial capital requirement of approximately [REDACTED] will be

used for upgrading the current existing development systems and improving the operational

conditions, as well as renewing for all the necessary operating, safety and environmentallicences, permits and certificates. The Independent Technical Consultants estimate that the

capital budget of approximately [REDACTED] is enough to complete the project development

tasks.

The advanced high temperature roasting purification technologies bring new life to amorphous

graphite, and magically turn the ‘‘trash to treasure’’. It is a remarkable innovation for the un-grading of the graphite industry, and certainly benefited to the growth applications of graphene

related products and technologies.


– III-13 –


DISCLAIMER

The opinions expressed in this Report have been based on the information supplied to RESPEC,Inc. and AP Appraisal Limited, by Sino Plus Graphite Holdings Co., Ltd. The opinions in thisReport are provided in response to a specific request from the Company. The Independent

Technical Consultants have exercised all due care in reviewing the data and information provided

by the Company and its subsidiaries. The accuracy of the results and conclusions of the review are

entirely relied on the accuracy and completeness of the information and data provided by the

Instructing Party.

The Independent Technical Consultants do not accept any responsibilities for errors or omissions of

the information and data provided and do not accept any consequential liabilities arising from

commercial decisions or actions resulting from them. Opinions presented in this Report apply to the

site conditions and features as they existed at the time of the Independent Technical Consultants’

investigations, and those reasonably foreseeable. These opinions do not necessarily apply toconditions and features that may arise after the date of this Report, about which the Independent

Technical Consultants had neither prior knowledge nor opportunities to evaluate.


– III-14 –


TABLE OF CONTENT

TABLE OF CONTENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

1.1. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

1.2. SCOPE OF WORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

1.3. RELEVANT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

1.4. REVIEW OF METHODOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

1.5. SITE VISITS AND INSPECTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

1.6. DATA ROOM REVIEW AND ORGANISATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

1.7. INDEPENDENT TECHNICAL CONSULTANTS’ QUALIFICATION AND

PROJECT TEAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

1.8. COMPETENT PERSONS AND RESPONSIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

1.9. COMPLIANCE STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

1.10. LIMITATION AND EXCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

1.11. RESPONSIBILITY AND CONTEXT OF THIS REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2. PROJECT DESCRIPTION AND LOCATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.1. INTRODUCTION OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.2. THREE SUBSIDIARIES UNDER CONTROL OF THE COMPANY . . . . . . . . . . . . . . . . . [.]

2.3. OVERVIEW OF THE THREE PROJECTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.3.1. Project Dengzhanwo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.3.2. Project Qingshuijiang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.3.3. Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.4. PROJECT LOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.4.1. The Location of Project Dengzhanwo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.4.2. The Location of Project Qingshuijiang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]


– III-15 –


2.4.3. The Location of Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.5. REGIONAL ENVIRONMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.5.1. The Regional Environment for Project Dengzhanwo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.5.2. The Regional Environment for Project Qingshuijiang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.5.3. The Regional Environment for Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.6. LICENCES AND APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.7. PROPERTY DESCRIPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.7.1. The Property of Project Dengzhanwo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.7.2. The Property of Project Qingshuijiang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.7.3. The Property of Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.8. EXPLORATION HISTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.8.1. Exploration History of Project Dengzhanwo and

Project Qingshuijiang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.8.2. Exploration History of Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.9. THE HISTORY OF MINING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

2.9.1.Mining History of Project Dengzhanwo and


2.9.2.Mining History of Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3. GEOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.1. REGIONAL GEOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.1.1. The Regional Geology of Project Dengzhanwo and


3.1.2. The Regional Geology of Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.2. STRATIGRAPHY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.2.1. Stratigraphy of Project Dengzhanwo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.2.2. Stratigraphy of Project Qingshuijiang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]


– III-16 –


3.2.3. Stratigraphy of Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.3. STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.3.1. The Structure at Project Dengzhanwo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.3.2. The Structure at Project Qingshuijiang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.3.3. The Structure at Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.4. MAGMATIC ROCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.4.1.Magmatic Rock at Project Dengzhanwo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.4.2.Magmatic Rock at Project Qingshuijiang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.4.3.Magmatic Rock at Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.5. METAMORPHISM/ALTERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.5.1.Metamorphism and Alteration at Project Dengzhanwo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.5.2.Metamorphism and Alteration at Project Qingshuijiang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.5.3.Metamorphism and Alteration at Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.6. MINERALISATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.6.1.Mineralisation at Project Dengzhanwo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.6.2.Mineralisation at Project Qingshuijiang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.6.3.Mineralisation at Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.7. QUALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.7.1. Ore Quality in Project Dengzhanwo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.7.2. Ore Quality in Project Qingshuijiang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

3.7.3. Ore Quality in Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

4. MINERAL RESOURCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

4.1. DATA VERIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

4.1.1. Additional Geological Engineering and Sampling for Verification . . . . . . . . . . . . . . . . . . . [.]


– III-17 –


4.2. GRAPHITE ORE ROCK/MINERAL IDENTIFICATION AND

CHEMICAL ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

4.3. RESOURCE AND RESERVES ESTIMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

4.3.1. Introduction of The Chinese Resource/Reserves Classification System . . . . . . . . . . . . . . . [.]

4.3.2. The Verification Procedures of the Resource/Reserves of Project Dishuidai . . . . . . . . . . . [.]

4.4. GENERAL DESCRIPTION OF THE METHODOLOGY EMPLOYED TO

ESTIMATE RESOURCES AND RESERVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

4.5. STATEMENT OF THE MINERAL RESOURCES AND RESERVES OF

PROJECT DISHUIDAI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

4.6. STATEMENTS OF THE RESOURCES AND RESERVES OF

PROJECT DENGZHANWO AND PROJECT QINGSHUIJIANG . . . . . . . . . . . . . . . . . . . [.]

4.7. POTENTIAL GRAPHITE RESOURCES AND RESERVES OF THE PROJECT . . . . . . [.]

5. PROJECT DEVELOPMENT AND PLANNING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

5.1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

5.2. PROJECT DEVELOPMENT PLAN FOR PROJECT DISHUIDAI . . . . . . . . . . . . . . . . . . . [.]

5.2.1. Development Levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

5.2.2. Transportation System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

5.2.3. The Ventilation System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

5.2.4. The Drainage System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

5.2.5. Power Supply and Distribution and Communication Facilities . . . . . . . . . . . . . . . . . . . . . . . [.]

5.2.6.Mining Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

5.3. INTRODUCTION OF THE PROJECT DEVELOPMENT PLAN FOR

PROJECT DENGZHANWO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

5.4. INTRODUCTION OF THE PROJECT DEVELOPMENT PLAN FOR

PROJECT QINGSHUIJIANG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

5.4.1. Project Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

5.4.2.Mining Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]


– III-18 –


5.5. CAPITAL AND OPERATING COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

5.5.1. The First Stage Capital Costs for Developing of the three Projects . . . . . . . . . . . . . . . . . . . [.]

5.5.2. Operating Costs of the Mining Operations of the Three Projects . . . . . . . . . . . . . . . . . . . . . [.]

6. MINERAL PROCESSING AND PURIFICATION TECHNOLOGIES FOR

AMORPHOUS GRAPHITE MINERALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

6.1. INTRODUCTION OF THE NATURAL GRAPHITE MINERALS IN CHINA . . . . . . . . . [.]

6.2. CLASSIFICATION OF NATURE GRAPHITE AND ITS PERFORMANCE IN

MINERAL PROCESSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

6.3. THE PROPERTIES OF GRAPHITE AND THE USE OF GRAPHITE . . . . . . . . . . . . . . . . [.]

6.4. INTRODUCTION OF THE FIVE BENEFICIATION AND

PURIFICATION METHODS OF AMORPHOUS GRAPHITE . . . . . . . . . . . . . . . . . . . . . [.]

6.4.1. Flotation Purification of Amorphous Graphite . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

6.4.2. Purification of Amorphous Graphite by Alkali Acid Method . . . . . . . . . . . . . . . . . . . . . . . . [.]

6.4.3. Purification of Amorphous Graphite by Hydrofluoric Acid Method . . . . . . . . . . . . . . . . . . [.]

6.4.4. Purification of Amorphous Graphite by Chlorination Roasting . . . . . . . . . . . . . . . . . . . . . . . [.]

6.4.5. High Temperature Purification of Amorphous Graphite . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

6.4.6. Prospects from the Graphite Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

6.5. PROCESSING PLANT TO BE BUILT WITH HIGH TEMPERATURE

PURIFICATION TECHNOLOGIES USED FOR

PURIFYING AMORPHOUS GRAPHITE MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

6.5.1. The Principles of the New Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

6.6. THE OPERATING COSTS OF THE PURIFICATION TO 99.99% FC . . . . . . . . . . . . . . . [.]

7. ECONOMIC EVALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

7.1. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

7.1.1.Mineral Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

7.1.2. Prospecting Right User Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

7.1.3. Extraction Right User Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]


– III-19 –


7.1.4. Resource Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

7.1.5. Value Added Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

7.1.6. City Maintenance and Construction Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

7.1.7. Land Use Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

7.1.8. Business Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

7.1.9. Education Surcharges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

7.2. NATURAL RESOURCES IN CHINA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

7.2.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

7.2.2.Market Status for the Main Project Commodities — Graphite . . . . . . . . . . . . . . . . . . . . . . . [.]

7.3. COMMODITY PRICE AND EXCHANGE RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

8. INFRASTRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

8.1. ROADS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

8.2. POWER SUPPLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

8.3. WATER SUPPLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

8.4. WASTE ROCK DUMPING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

9. HEALTHY AND SAFETY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

9.1. SAFETY ASSESSMENT AND APPROVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

9.2. HEALTH AND SAFETY MANAGEMENT AND OBSERVATION . . . . . . . . . . . . . . . . . . [.]

10. ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENT . . . . . . . . . . . . . . . . . . . . [.]

10.1. ENVIRONMENTAL AND SOCIAL REVIEW OBJECTIVE . . . . . . . . . . . . . . . . . . . . . . . . [.]

10.2. ENVIRONMENTAL AND SOCIAL REVIEW PROCESS, SCOPE AND STANDARDS [.]

10.3. STATUS OF ENVIRONMENTAL APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

10.4. POLLUTION SOURCES AND MITIGATION MEASURES . . . . . . . . . . . . . . . . . . . . . . . . [.]

10.5. SOCIAL ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]


– III-20 –


11. RISKS AND OPPORTUNITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

11.1. RISKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

11.2. OPPORTUNITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

12. PARTICIPATING ENGINEERS AND GEOLOGISTS STATEMENT . . . . . . . . . . . . . [.]

13. DATA SOURCE AND REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

APPENDIX A — COPY OF MINING LICENCES &

SAFE PRODUCTION CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

APPENDIX B — CHINESE RESOURCE AND RESERVES STANDARDS . . . . . . . . . . . . [.]

APPENDIX C — CHINESE ENVIRONMENTAL LEGISLATIVE BACKGROUND . . . . [.]

APPENDIX D — EQUATOR PRINCIPLES AND INTERNATIONALLY RECOGNISED

ENVIRONMENTAL MANAGEMENT PRACTICES . . . . . . . . . . . . . . [.]


– III-21 –


LIST OF FIGURES

Fig 2-1 Organisation chart of the Company as of 31 January 2022 . . . . . . . . . . . . . . . . . . . . . . . [.]

Fig 2-2 Location of Project Dengzhanwo, Project Qingshuijiang and Project Dishuidai . . . . . [.]

Fig 2-3 Location Map of Project Dengzhanwo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Fig 2-4 Location Map of Project Qingshuijiang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Fig 2-5 Location Map of Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Fig 3-1 Geology of Project Dengzhanwo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Fig 3-2 Geology of Project Qingshuijiang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Fig 3-3 Geology of Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Fig 3-4 Cross-sections for 2# and 3# Graphite Ore Seams at Project Dishuidai . . . . . . . . . . . . [.]

Fig 3-5 Correlation between surface and underground workings at Project Dishuidai . . . . . . [.]

Fig 3-6 Graphite Ores at Level 625 m of Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Fig 4-1 Sketch map of Prospecting Results of a Fresh Ore Body Exposing Point of

3# Graphite Ore Seam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Fig 4-2 The Major Graphite Ore Seams of Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Fig 4-3 Mineral Resources Estimating for #2 Graphite Ore Seam at Project Dishuidai . . . . . [.]

Fig 4-4 Mineral Resources Estimating for 3# Graphite Ore Seam at Project Dishuidai . . . . . [.]

Fig 5-1 Longitudinal Projection of the Development System of Project Dishuidai . . . . . . . . . . . [.]

Fig 5-2 Short-wall Caving Mining Method for Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Fig 5-3 Geological Map of Project Qingshuijiang Showing Licence Boundary and

the Three Mining Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Fig 5-4 B-B Cross-Section Lined in Fig 5-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Fig 5-5 A Typical Short-hole Shrinkage Mining Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Fig 6-1 Graphite Minerals Deposits and Mineralisation Zones in China . . . . . . . . . . . . . . . . . . . [.]

Fig 6-2 Roasting Process for Amorphous Graphite Raw Materials . . . . . . . . . . . . . . . . . . . . . . . . [.]


– III-22 –


Fig 6-3 The High Temperature Vacuum Graphite Purifying Furnace . . . . . . . . . . . . . . . . . . . . . . [.]

Fig 6-4 Diagram of The Graphite Purification System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Appendix Fig A-I Photocopy of the Mining licence and Renewal Statement for

Project Dengzhanwo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Appendix Fig A-II Photocopy of the Mining licence for Project Qingshuijiang . . . . . . . . . . . . . [.]

Appendix Fig A-III Photocopy of the Mining licence for Project Dishuidai . . . . . . . . . . . . . . . . . [.]

Appendix Fig A-IV Photocopy of the SPC for Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Appendix Fig A-V Photocopy of the SPC for Project Qingshuijiang . . . . . . . . . . . . . . . . . . . . . . . [.]

Appendix Fig B-I New Chinese Resource/Reserves Classification Matrix (1999) . . . . . . . . . . . . [.]


– III-23 –


LIST OF TABLES

TABLE EC-1 Statement of Graphite Ore Reserves of Project Dishuidai

as of 31 January 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

TABLE EC-2 Statement of Graphite Ore Reserves of Dengzhanwo and

Project Qingshuijiang as of 31 January 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

TABLE 2-1 List of Names of Projects acquired by the Company which became

its subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

TABLE 2-2 Produced Mineral and Location of the Subject Properties . . . . . . . . . . . . . . . . . . . . . [.]

TABLE 2-3 Mining Licence for Project Dengzhanwo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

TABLE 2-4 Mining Licence for Project Qingshuijiang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

TABLE 2-5 Mining Licence for Project Dishuidai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

TABLE 2-6 the Company — Status of Licences as of 31 January 2022 . . . . . . . . . . . . . . . . . . . . [.]

TABLE 4-1 Additional Geological Engineering for the Resources/Reserves Verification

Carried out by the 311 Brigade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

TABLE 4-2 Testing Results of the Industrial Analysis of the Graphite Ore Samples

Sampled from Ore Seams of 2# and 3# at Project Dishuidai from

2008 to 2016 (Abbreviation names modified by

the Independent Technical Consultants) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

TABLE 4-3 Chemical Analysis of the Graphite Ore Samples from Project Dishuidai

by the Analysis Center of the School of Geosciences and

Information Physics of Zhongnan University in 2012 . . . . . . . . . . . . . . . . . . . . . . . . [.]

TABLE 4-4 Rock/Mineral Identification Analysis of the Graphite Ore Samples from

Project Dishuidai by the Analysis Center of the School of

Geosciences and Information Physics of Zhongnan University in 2012 . . . . . . . . [.]

TABLE 4-5 Key Characteristics of the Graphite Ores of Project Dishuidai

as of 31 January 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

TABLE 4-6 New Chinese Resource/Reserves Classification Scheme in Comparison to JORC . [.]

TABLE 4-7 Statement of Graphite Ore Reserves of Project Dishuidai

as of 31 January 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

TABLE 4-8 Statement of Graphite Ore Reserves of Dengzhanwo and

Project Qingshuijiang as of 31 January 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]


– III-24 –


TABLE 5-1 Breakdown of Capital Costs for Project Development of the Three

Projects — the First Stage Project Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

TABLE 5-2 Breakdown of Estimated Operating Costs for Extracting of the

Graphite Deposits from the three Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

TABLE 5-3 Mining Schedule of the Graphite Deposits from the three Projects . . . . . . . . . . . . . [.]

TABLE 7-1 Mining Schedule of the Graphite Deposits from the three Projects . . . . . . . . . . . . . [.]

TABLE 7-2 Project Costs Estimation Summary as of 31 January 2022 . . . . . . . . . . . . . . . . . . . . [.]

TABLE 7-3 Newly Discovered Reserves & Resources of Major Minerals . . . . . . . . . . . . . . . . . . . [.]

TABLE 7-4 China’s graphite output during 2018 to 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

TABLE 10-1 The Three Projects in Chenzhou, EIA Report and Approvals . . . . . . . . . . . . . . . . . [.]

TABLE 10-2 The Three Projects, WSCP Report and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

TABLE 10-3 Project Geological Environmental Restoration and Land Rehabilitation . . . . . . . [.]

TABLE 10-4 Results of EIA for Project Dishuidai as reported in November 2016 . . . . . . . . . . . [.]

TABLE 11-1 Summary of Project Risk Assessment regarding the 3 Projects . . . . . . . . . . . . . . . . [.]

TABLE 11-2 Summary of Qualitative Risk Matrix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Appendix Table B-I General Comparison Guide Between Chinese Classification scheme and

the JORC Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Appendix Table B-II Definition of the New Chinese Resource and Reserves Category Scheme [.]

Appendix Table B-III New Chinese Classification Scheme in Comparison to JORC . . . . . . . . . [.]

Appendix Table D-I Brief summary of the Equator Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]

Appendix Table D-II IFC Performance Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [.]


– III-25 –


LIST OF TERMS AND ABBREVIATIONS

% Percent

° Degrees, either of temperature or angle of inclination

°C Degree Celsius

AAS Atomic absorption spectrometry

Ag Silver

ASL Above Sea Level

Assay The chemical analysis of mineral samples to determine the

metal content

AusIMM Australasian Institute of Mining and Metallurgy

Capital Expenditure (Capex) All other expenditures not classified as operating costs

cm Centimeter

Composite Combining more than one sample result to give an average

result over a larger distance

Concentrate A metal-rich product resulting from a mineral enrichment

process such as gravity concentration or flotation, in which

most of the desired mineral has been separated from the waste

material in the ore

Crushing Initial process of reducing ore particle size to render it more

amenable for further processing

Cu.m Cubic meter

Cut-off Grade (CoG) The grade of mineralized rock, which determines as to whether

or not it is economic to recover its gold content by further

concentration

Dilution Waste, which is unavoidably mined with ore

Dip Angle of inclination of a geological feature/rock from the

horizontal

E East cardinal direction


– III-26 –


EIA Environmental Impact Assessment

EMP Environmental Management Plan

FA Fire Essay

Fault The surface of a fracture along which movement has occurred

Footwall The underlying side of an orebody or stope

Fresh Refer to Fresh minerals (nor-oxidised minerals)

g Gram

g/t Gram per tonne

Grade The measure of concentration of gold within mineralized rock

FC Fixed Carbon

Hangingwall The overlying side of an orebody or slope

Haulage A horizontal underground excavation which is used to

transport mined ore

HCI Hydrochloric Acid

HF Hydrofluoric Acid

IFC International Finance Corporation

Igneous Primary crystalline rock formed by the solidification of magma

Independent Technical

Consultants

RESPEC, Inc and AP Appraisal Limited

Indicated Mineral Resources That part of a Mineral Resource for which quantity, grade (or

quality), densities, shape and physical characteristics are

estimated with sufficient confidence to allow the application

of Modifying Factors in sufficient detail to support project

planning and evaluation of the economic viability of the

deposit


– III-27 –


Inferred Mineral Resources That part of a Mineral Resource for which quantity and grade

(or quality) are estimated based on limited geological evidence

and sampling Geological evidence is sufficient to imply but

not verify geological and grade (or quality) continuity It is

based on exploration, sampling and testing information

gathered through appropriate techniques from locations such

as outcrops, trenches, pits, workings and drill holes

IRR Internal Rate of Return

JORC Code Code Australasian Code for Reporting of Exploration Results,

Mineral Resources and Ore Reserves, the current version is

2012

JORC Joint Ore Reserves Committee

kg Kilogram, equivalent to 1,000 grams

km Kilometres, equivalent to 1,000 metres

km2 Square kilometres

kt Thousand tonnes

kt/d or ktpd Thousand tonnes per day

kt/y or ktpa Thousand tonnes per year (annum)

kV Kilovolt

kW Kilowatt

kWh Kilowatt-hour

kWh/t Kilowatt-hour per metric tonne

Lithological Geological description pertaining to different rock types

LoM Life-of-Mine plans

m Metre

m2 Square metre

m3 Cubic metre

M Million


– III-28 –


Measured Mineral Resource That part of a Mineral Resource for which quantity, grade (or

quality), densities, shape, and physical characteristics are

estimated with confidence sufficient to allow the application

of Modifying Factors to support detailed project planning and

final evaluation of the economic viability of the deposit

Milling A general term used to describe the process in which the ore is

crushed and ground and subjected to physical or chemical

treatment to extract the valuable metals to a concentrate or

finished product

mm Millimeter

Mineral/Mining Lease A lease area for which mineral rights are held

Mining Assets The Material Properties and Significant Exploration Properties

NPV Net Present Value

OHS Occupational health and safety

Ore Reserves The economically mineable part of a Measured and/or

Indicated Mineral Resource It includes diluting materials and

allowances for losses, which may be occurred when the

material is mined or extracted and is defined by studies at Pre-

Feasibility or Feasibility level as appropriate that include

application of Modifying Factors

Pillar Rock left behind to help support the excavations in an

underground project

RMB Chinese Yuan

RoM Run-of-Mine, i.e., raw ore output

S Sulphur

Shaft An opening cut downwards from the surface for transporting

personnel, equipment supplies, ore and waste

Silicification Under the action of hydrothermal solution, the rocks produce

alteration minerals such as quartz, chalcedony, opal and jasper

Sill A thin, tabular, horizontal to sub-horizontal body of igneous

rock formed by the injection of magma into planar zones of

weakness


– III-29 –


Smelting A high temperature pyrometallurgical operation conducted in a

furnace, in which the valuable metal is collected to a molten

matte or ore phase and separated from the gangue components

that accumulate in a less dense molten slag phase

Stope Underground void created by mining

Stratigraphy The study of stratified rocks in terms of time and space

Strike Direction of line formed by the intersection of strata surfaces

with the horizontal plane, always perpendicular to the dip

direction

Sulfide A sulfur bearing mineral

t Tonne (metric ton)

tpa Tonnes per year (annum)

tpd Tonnes per day

Tailings Finely ground waste rock from which valuable minerals or

metals have been extracted

Thickening The process of concentrating solid particles in suspension

Total Expenditure All expenditures including those of an operating and capital

nature

W West cardinal direction

WSCP Water and Soil Conservation Plans


– III-30 –


1. INTRODUCTION

1.1. Background

Sino Plus Graphite Holdings Co., Ltd (the ‘‘Company’’) commissioned RESPEC, Inc

(‘‘RESPEC’’), and AP Appraisal Limited (‘‘APA’’) (collectively, ‘‘RESPEC and APA’’ or the

‘‘Independent Technical Consultants’’) to jointly prepare an independent technical report (the

‘‘Independent Technical Report’’ or the ‘‘Report’’) on the three mineral assets located in the PRC

controlled by the Company.

It is the Independent Technical Consultants’ goal to assess the permits of 3 mining Projects (the

mineral assets), dedicated to the extraction of graphite minerals, two of the three Projects also have

lead, zinc, tin and silver mineral resources found within the mining licence areas which may be

recovered along with the extraction of the graphite minerals. The three projects of the Company

(the ‘‘Projects’’) are located in Chenzhou City of Hunan province of the PRC.

1.2. Scope of Work

The following assignments were included within the Scope of Work under this study for the

Independent Technical Consultants:

. Complete a site visit with the appropriate personnel;

. Visit all the three Project sites;

. Collect data and relevant information from the Projects and the offices of the owner, related to

production, quality, sales contracts, revenues, and expenses;

. Translate the documents on the three Projects;

. Review and analyse all the data provided;

. Independently update of the Resource and Reserves base, considering the depletion associated

with the production which was reported by the active operations;

. Write and present an updated the Report to the Company for review and comment; and

. Finalise the Report.

1.3. Relevant Assets

The assets that are of interest to the Company comprise the complete holdings and mineral

concessions of the following three companies on which the Company has acquired a controlling

interest:

. Chenzhou Beihu Dengzhanwo Graphite Mining Co., Limited (‘‘Dengzhanwo’’)

(The Project owned by Dengzhanwo is known as the ‘‘Project Dengzhanwo’’);


– III-31 –


. Chenzhou Beihu Furongxiang Qingshuijiang Tin Polymetallic Mining Co., Limited

(‘‘Qingshuijiang’’)

(The Project owned by Qingshuijiang is known as the ‘‘Project Qingshuijiang’’);

. Linwu Jinjiangzhen Dishuidai Graphite Mining Co., Limited (‘‘Dishuidai’’)

(The Project owned by Dishuidai is known as the ‘‘Project Dishuidai’’).

The above numbers have been assigned to the corresponding mining operations and are used for

reference purposes in this Report.

1.4. Review of Methodology

The Independent Technical Consultants’ methodology for this study included the following:

. Conducting initial meetings with the senior management of the Company and personnel of its

subsidiaries.

. Performing site visit to the project sites of all three Projects.

. Obtaining historic production and quality figures, sales contracts, and operational and capital

expenditures, as well as other relevant reports and documents from the owner.

. Providing translation of the documents into English and the reviewing of the material for use

in this Report.

. Independently update of the Resource and Reserves base.

. Preparing this Report and submitting it to the Company for review and comments.

1.5. Site Visits and Inspections

Mr. Edmundo J. Laporte (RESPEC), Ms. Yan Chen and Mr. Ren Luo (Company), carried out

preliminary site visits to the subject mining operations between 21 August and 28 August 2017.

During the visits, RESPEC interviewed mine directors and staff, and collected data on the

operations. No underground visits were made at the mines during the aforesaid dates.

Between 14 August and 23 August 2018, the same team which carried out the 2017 site visits

returned to some of the operations, along with Dr. Deliang Han (RESPEC) for a more detailed

inspection of the operations.

Subsequent to the site visits there were several requests for additional data and translation of

significant documents and maps.

In April 2021, Dr. Lifeng Li (RESPEC) visited again the project sites of the Projects, as well as

graphite processing facilities in Miluo City, Hunan Province.


– III-32 –


Mr. Baolong Zhao, a consultant of AP Appraisal Limited and a competent person under Chapter 18

of the Listing Rules, carried out site visits to all the subject Projects in March and July 2021,

respectively. During the site visits, he interviewed the project directors and technical staff and

collected data on the operations. Underground inspections were made at Project Dishuidai, and no

underground inspections made at Project Qingshuijiang and Project Dengzhanwo as these two

Projects ceased operations a few years ago and no access was permitted to enter underground

tunnels as required by the local Safety Supervision Bureau.

The Independent Technical Consultants observed that these 3 graphite Projects are similar, and the

Independent Technical Consultants had thorough understanding of the regional geology and

mineralisation from the underground visit of Project Dishuidai. Therefore, despite the Independent

Technical Consultants did not perform underground inspections for Project Qingshuijiang and

Project Dengzhanwo, it does not materially affect the accuracy and presentation of this Report.

1.6. Data Room Review and Organisation

The Independent Technical Consultants were granted access by the Company to an electronic data

room that consists of shared Dropbox folder, which contained legal and technical information on

the subject properties. Among other documents, for this Report, the Independent Technical

Consultants reviewed exploration and exploitation reports, Environmental Impact Assessments

(EIA), mineral reserves reports, mining rights evaluations, safety reports, topographical information

on the boundaries of the various properties, location of boreholes, miscellaneous technical

documents, business, exploration and mining licences, geologic maps, and many other relevant

documents.

Among other documents, the Independent Technical Consultants reviewed the following:

. Exploration Reports

. Topographical Surveys

. Geological Reports

. Mineral Resources and Reserves Reports

. Safety Reports

. Mining Rights Evaluations

. Various documents containing comments from regulators

. Quality Reports

. Environmental Impact Assessments

. Business Licences


– III-33 –


. Exploration Licences

. Mining Licences

. Work Safety Permits

. Exploitation Plans

. Licences for Blasting Operation Entities

. Pollutants Discharge Permits

. Explosives Storage Licences

. Project Feasibility Studies

The Independent Technical Consultants used these documents to gain knowledge on the subject

Projects and their legal status, as well as the quality of the mineral resources. This knowledge, as

well as the multiple interviews with project personnel, additional publicly available information and

the Independent Technical Consultants’ visit to the sites, are the foundation of the Independent

Technical Consultants’ technical opinion on the subject Projects.

Over a period of several months the Company continued supplying information on the Projects. In

some cases, the information was supplementary to reports and documents already included in the

original data room, while at times it was brand new information.

Several iterations of the overall Project’s financial model were discussed and the Company provided

new documents, including the approach for the processing of Graphite from the Hunan operations,

which involved setting up the Company’s own processing plant.

1.7. Independent Technical Consultants’ Qualification and Project Team

RESPEC, Inc. and AP Appraisal Limited are comprised by a team of national and international

professionals, including but not limited to:

. registered real estate valuers,

. registered land valuers,

. registered asset appraisers,

. appraisers from American Society of Appraisers of the United States,

. appraisers from Royal Institution of Chartered Surveyors of the United Kingdom,

. members from Australasian Institute of Mining and Metallurgy of Australia, and


– III-34 –


. members form Canadian Institute of Mining, Metallurgy and Petroleum of Canada.

AP Appraisal Limited is headquartered in Hong Kong and dedicated to providing reliable, high-

quality appraisal and consulting services for domestic and foreign customers since establishment.

The expert team of the Independent Technical Consultants includes the following Competent

Persons:

Mr. Edmundo J. Laporte (RM-SME)

Mr. Laporte is a licensed professional engineer with over 30 years of experience in multiple

industrial mineral, metal, coal, and hard-rock mining projects in the Americas, Europe, Africa,

Australia, and Asia. His experience includes underground operations in epithermal narrow vein

deposits in Mexico; fluorspar deposits in five continents; large open-pit copper mines in Chile and

Argentina; underground limestone, sandstone, and oil-shale mines in the US; underground coal

mines in the US and Colombia; and multiple open-pit coal and hard-rock projects in South America

and the US. Mr. Laporte is licensed in multiple states in the US and in Alberta and Nova Scotia,

Canada. Mr. Laporte has been accepted by the HKEx as a Competent Person for many years. He is

professionally qualified, as demonstrated by his licensing as a Professional Engineer in 11 states of

the United States, 4 Provinces of Canada and as Chartered Professional Engineer in Australia. He is

a member of professional organizations such as SME, the Society for Mining, Metallurgy &

Exploration, as a Registered Member, the highest level of Membership, which is accepted as a

Competent Person by the JORC Code, the Canadian NI 43-101 rules and other relevant

international codes. He is a Professional Engineer in Alberta, Nova Scotia, Ontario and

Saskatchewan, Canada, all of which are part of Engineers Canada, which is a Recognized

Professional Organization, in a jurisdiction where, the statutory securities regulator has satisfactory

arrangements by way of the IOSCO Multilateral MOU with the Securities and Futures Commission

of Hong Kong for mutual assistance and exchange of information for enforcing and securing

compliance with the laws and regulations of that jurisdiction and Hong Kong.

Mr. Deliang Han (APEGS)

Dr. Han is a professional geologist and a member of the Association of Professional Engineers and

Geoscientists of Saskatchewan (‘‘APEGS’’) with an educational background in sedimentology,

petrology, and geological application of geomatics. His experience and interests include geological

exploration, geological data integration and validation, geological and mineral resources modeling,

mineral resources and reserve estimates, geospatial data analysis, on-site geological support and

postdrilling detailed core analyses, and technical reports and advisement. As a professional

geoscientist with more than 20 years combined experience in mining, exploration, and geoscientific

research, Dr. Han specializes in sedimentology, petrology, and mineral resource valuation. Dr. Han

has extensive experience in mineral resource exploration. Some of his more relevant projects

include due diligence reviews, property assessments, exploration planning and project management,

on-site geological support and postdrilling detailed core analyses, National Instrument (NI) 43-101

technical reports, and technical advisement.


– III-35 –


Mr. Baolong Zhao (MAusIMM)

Mr. Baolong Zhao is a full-time employee of APA and a Member of the Australasian Institute of

Mining and Metallurgy (MAusIMM). Mr. Baolong Zhao has more than 10 years of relevant

experience to the style of mineralisation and type of deposit under consideration and to the activity

which he has undertaken to qualify as a Competent Person as defined in the 2012 Edition of the

Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves

(The JORC Code). The Mineral Resource estimate complies with the guidelines of the JORC Code;

therefore, it is suitable for public reporting.

Mr. Paul Hung (MAusIMM)

Mr. Paul Hung is a director in APA. He is responsible for valuation including mineral resources,

land and real properties, company value, infrastructures, plants and equipment in Hong Kong and

the PRC for purpose of [REDACTED], circular, auditing, financing etc. Mr. Paul Hung is a

Registered Surveyor and Member of Royal Institution of Chartered Surveyor, Accredited Senior

Appraiser of American Society of Appraiser, Certified Business Appraiser of Institute of Business

Appraisers of United States, Member of Australasian Institute of Mining and Metallurgy, Member

of Canadian Institute of Mining, Metallurgy and Petroleum, Professional Member of Geological

Society of America, Professional Member of Society for Mining, Metallurgy, and Exploration, and

Member of Society of Petro-physicists and Well Log Analysts.

Mr. Paul Hung has over 10 year’s mining valuation experience in the Greater China Region.

1.8. Competent Persons and Responsibility

Mineral Resource Update

The information in this Report that relates to the estimation of Mineral Resources of the Projects is

compiled by Mr. Edmundo J. Laporte and Mr. Deliang Han who are full-time employees of

RESPEC and Mr. Baolong Zhao and Mr. Paul Hung who are full-time employees of APA. Mr.

Laporte is a Registered Member of the Society for Mining, Metallurgy & Exploration, as well as

several other recognized professional organizations. Mr. Han is Professional Geologist registered

with the Association of Professional Engineers and Geoscientists of Saskatchewan (APEGS). Mr.

Baolong Zhao is a member of the Australasian Institute of Mining and Metallurgy (the

‘‘AusIMM’’). Mr. Paul Hung is a member of the AusIMM. Mr. Edmundo J. Laporte, Mr. Deliang

Han, Mr. Baolong Zhao and Mr. Paul Hung have sufficient and recent experience which is relevant

to the style of mineralisation and type of deposit under consideration and to the activity which they

have undertaken to qualify as Competent Persons as defined in the JORC Code. Mr. Edmundo J.

Laporte, Mr. Deliang Han, Mr. Baolong Zhao and Mr. Paul Hung have jointly prepared and

reviewed, and are jointly and severally responsible for, all the sections of the Independent

Technical Report.

The Mineral Resource estimate complies with the guidelines of the JORC Code. Therefore, it is

suitable for public reporting.


– III-36 –


Ore Reserves Update

The information in this Report that relates to Ore Reserves is jointly compiled by Mr. Edmundo J.

Laporte, Mr. Deliang Han, Mr. Baolong Zhao and Mr. Paul Hung, Competent Persons defined in

the JORC Code and relevant guidelines of the Stock Exchange.

1.9. Compliance Statement

The information in this Report is based on information compiled by Mr. Edmundo J. Laporte, Mr.

Deliang Han, Mr. Baolong Zhao and Mr. Paul Hung.

Mr. Edmundo J. Laporte has over 30 years of professional career and experience in a number of

minerals such as graphite, limestone, sandstone, mineral sands, coal, gold, silver, molybdenum,

coalbed methane, copper, fluorspar, lithium, barite, quartzite, granite, barite, vermiculite, potash,

manganese and others. Mr. Laporte has enough experience ‘‘relevant to the style of mineralization

and type of deposit under consideration’’ and has worked with a team of other professionals who

are also experienced in graphite. Mr. Laporte has a deep understanding of the subject amorphous

graphite deposits, which are formed by thermal metamorphism of coal. Mr. Laporte has been

accepted by the HKEx as a Competent Person for many years and is professionally qualified, as

demonstrated by his licensing as a Professional Engineer in 11 states of the United States, 4

Provinces of Canada and as Chartered Professional Engineer in Australia. Mr. Laporte is a member

of professional organizations such as SME, the Society for Mining, Metallurgy & Exploration, as a

Registered Member, the highest level of Membership, which is accepted as a Competent Person by

the JORC Code, the Canadian NI 43-101 rules and other relevant international codes.

Mr. Deliang Han is a professional geologist and a member of the Association of Professional

Engineers and Geoscientists of Saskatchewan (‘‘APEGS’’). He is a geologist working full time for

RESPEC as a senior geologist. Mr. Han has more than 30 years of extensive experience in the

mining industry globally including projects in China, Canada, the US, Australia, Africa, and

southeast Asia. Mr. Han has completed many resources modeling and resources/reserve estimate

projects by using the Vulcan Grid model. He has also completed resources modeling and

assessment projects in southeast Asia using SURPAC block modeling software. He also has

experience in three-dimensional (3D) geological modeling and resources estimation for gold

exploration and development projects in northern Saskatchewan and northwestern Ontario using

GEOVIA GEMS. Mr. Han has been responsible for geological database setup and data

management, including data inputs, outputs, data validation, and assay quality assurance/quality

control (QA/QC) practices for various mineral exploration and mining projects in North America.

He has experience in predictive mapping of surficial materials by using remotely sensed data in

conjunction with Digital Elevation Model (DEM) and other geological data. Mr. Han has experience

with sedimentology and depositional environment includes carbonate sedimentary environments and

oil-and-gas potential analysis in the Permian Sedimentary Basin of the Middle Yangzhi area in

China. Mr. Han has also participated in a study of the derivative sediments in shelf regions of the

Yellow Sea and the Bohai Sea of China since the last stage of the Middle Pleistocene. Mr. Han is

qualified as a Competent Person as defined in JORC code. Mr. Han has prepared a notable amount

of competent person reports for companies listed on the Canadian Stock Exchange. Some of the


– III-37 –


mineral projects such as coal seams have common geological formation characteristics with the

graphite ore seams of the three mining Projects that Competent Persons have inspected, which

contribute to a better understanding of the geology of graphite minerals formations and prospecting.

Mr. Baolong Zhao is a Member of The Australasian Institute of Mining and Metallurgy since 2008

and is a full-time employee of APA, a consulting firm registered in Hong Kong providing mineral/

mining technical services and project valuations. Mr. Zhao has been trained as a mining

professional and specialist with qualifications, knowledge, and experience covering mining

technologies, geology, mineral processing, project management and economic analysis, as well as

the knowledge and experiences of the best practices in the areas of safety and occupational health

management, social issues and environmental management in the mining industry. He has overall

20 years relevant experiences regarding the estimations of a mineral/mining project, which includes

over five years recent and relevant experiences of estimation Mineral Resources and Ore Reserves

and technical reviews against the projects that Competent Persons have been reviewing as defined

in the JORC Code 2012 Edition and Australasian Code for Public Reporting of Technical

Assessments and Valuations of Mineral Assets (the ‘‘VALMIN Code’’) 2015 Edition adopted by the

AusIMM.

Mr. Paul Hung is a Member of The Australasian Institute of Mining and Metallurgy since 2011 and

is a full-time employee of APA, a consulting firm registered in Hong Kong providing mineral/

mining technical services and project valuations. Mr. Hung has been trained as a mining

professional and specialist with qualifications, knowledge, and experience covering mining

technologies, geology, mineral processing, project management and economic analysis in the

mining industry. He has overall 10 years relevant experiences regarding the estimations of a

mineral/mining project, which includes over five years recent and relevant experiences of estimation

Mineral Resources and Ore Reserves and technical reviews against the projects that Competent

Persons have been reviewing as defined in the JORC Code 2012 Edition and Australasian Code for

Public Reporting of Technical Assessments and Valuations of Mineral Assets (the ‘‘VALMIN

Code’’) 2015 Edition adopted by the AusIMM.

Requirements of the Stock Exchange

Each of Mr. Edmundo J. Laporte and Mr. Deliang Han, Mr. Baolong Zhao and Mr. Paul Hung

meets the requirements of a Competent Person, as defined by Chapter 18 of the Listing Rules and

relevant guidelines published by the Stock Exchange. These requirements include:

. Has more than ten years’ experience relevant to the style of mineralisation and type of deposit

under consideration and to the activity which the Company is undertaking;

. Is a member in good standing of Australasian Institute of Mining and Metallurgy (MAusIMM)

or Australasian Institute of Geoscientists (‘‘MAIG’’);

. Does not have economic or beneficial interest (present or contingent) in any of the reported

assets;


– III-38 –


. Has not received a fee dependent on the findings outlined in the Report;

. Is not an officer, employee of proposed officer for the Company or any group, holding or

associated company of the Company; and

. Takes overall responsibility for the Report.

Consent

As the Competent Persons to prepare this Report, each of Mr. Edmundo J. Laporte, Mr. Deliang

Han, Mr. Baolong Zhao and Mr. Paul Hung has given consent to the inclusion in the Report of the

matters based on his information in the form and context in which it appears.

I, Edmundo J. Laporte, do hereby certify that I am an employee of RESPEC to carry out the

assignment for RESPEC.

Mr. Edmundo J. Laporte:

. I graduated with a Bachelor of Science degree in Engineering from the University of Rafael

Urdaneta in Venezuela, in 1987.

. I am a Professional Engineer in good standing of the Association of Professional Engineers

and Geoscientists of Saskatchewan (APEGS) (Member #37445), the Association of

Professional Engineers and Geoscientists of Alberta (APEGA) (Member #115326), Engineers

Nova Scotia (Members #m11077) and Professional Engineers Ontario (Member #100508702)

. I am a Registered Member of the Society for Mining, Metallurgy & Exploration Inc. (SME)

(Registered Member #04150038)

. I am a Professional Engineer in 11 jurisdictions of the United States: North Carolina,

Tennessee, Louisiana, Virginia, Alabama, Texas, Ohio, Kentucky, Indiana, Arkansas and West

Virginia.

. I am Chartered Professional Engineer and member in good standing of the Institution of

Engineers Australia (Engineers Australia) (Member# 3802017)

. My relevant experience includes exploration, mine planning, mine design, rock mechanics,

ground control and economic modeling for mining projects in the Americas, Europe, Asia and

Africa.

. I have participated in the preparation of numerous NI 43-101 and JORC technical reports as

well as private internal reports for mining projects in North America and abroad.

I have made site visits and on-site investigations on the three Projects in August 2018, to have site

seeing, interviewing the relevant key staff and the department leaders for gathering data and

information as required for the mission, and discussing with the relevant technical, operational, and


– III-39 –


management personnel of their perspectives on future development plan of the project. I am the

principal author responsible to prepare and compile the major parts of the Report. I have no

involvements with the Projects and the Company. I have no interest, or intention to receive any

interests, either directly or indirectly, either from the project itself, or from the Company and its

subsidiaries.

I, Deliang Han, do hereby certify that I am an employee of RESPEC to carry out the assignment for

RESPEC.

Mr. Deliang Han:

. I graduated with a Bachelor of Science Degree in Geology from the Jilin University,

Changchun, China in 1986.

. I graduated with a Master of Science Degree in Marine Geology from the Ocean University of

China, in Qingdao, China, in 1989.

. I graduated with a Degree pof Doctor of Philosophy in Marine Geology from the Institute of

Oceanography of the Chinese Academy of Sciences, Qingdao, China, in 1999.

. I graduated with a Master of Science Degree in Geology from the University of Regina, in

Regina, Saskatoon, Canada in 2011.

. I am a Professional Geoscientist registered in Saskatchewan, Canada (Certificate No. 23270).

. My experience and interests include exploration, mineral resources assessment, due diligence,

geological data integration and validation, geological and mineral resources modeling,

geospatial data analysis, and technical reports and advisement.

. I am specialized in sedimentology, petrology, and mineral resources and reserves evaluation.

. I have over 20 years combined experience in mining, exploration, and geoscientific research

and have participated in a broad spectrum of projects in Canada, the United States, Mexico,

Australia, Africa, China, Mongolia, and Southeast Asia. These projects have included due

diligence, property assessments, exploration planning and project management, National

Instrument (NI) 43-101 and Joint Ore Reserves Committee (JORC) compliant technical

reports, resources and reserve model reviews, and technical advisement.

I have made site visits and on-site investigations on the three Projects in August 2018 to have site

seeing, interviewing the relevant key staff and the department leaders for gathering data and

information as required for the mission, and discussing with the relevant technical, operational, and

management personnel of their perspectives on future development of the project. My contribution

to this document focused on the preparation of the geology sections and quantification of mineral

resources. I have no involvements with the Projects and the Company. I have no interest or

intention to receive any interests, either directly or indirectly, either from the project itself, or from

the Company and its subsidiaries.


– III-40 –


Mr. Baolong Zhao graduated with:

. A Bachelor’s degree in Mining Engineering (BSc.) from the Inner Mongolia University of

Science Technology in 1985;

. A Master’s degree in Mining Engineering and Technology (MSc.) from Beijing University of

Science and Technologies in 1991; and

. A Master’s degree in Environmental Technologies (MSc. Tech) from the University of

Waikato New Zealand in 2000.

I am a Member of the Australasian Institute of Mining and Metallurgy since 2008 (MAusIMM:

992042). I have been directly or indirectly involved in mineral project evaluations either for

investment and management purpose or for providing technical advice for clients for more than 20

years. As defined by the Listing Rules of being a Competent Person Reporting Mineral Resources

and Ore Reserves for public disclose on the Stock Exchange, I certify that I meet the requirements

of being a Competent Person to provide a competent person’s report for the Company to be

[REDACTED] on the Stock Exchange. Being a lecturer and researcher for seven years at the School

of Mining Engineering in China, I had gained a lot of the updated modern knowledge of mining

technologies, project planning and management and mining project technical evaluation and

economic analysis. With sustainable mining research experience gained from the University of New

South Wales Australia, I moved back to China in 2005 and made efforts to deliver the best

practices the sustainable mining concepts into the mineral/mining projects that I have worked for.

I have worked for mining or investment companies (a few listed companies listed on the Stock

Exchange, including Grand T G Gold Holdings Limited (8299 HK), New Times Energy

Corporation Limited (166 HK) and Ban Loong Holdings Limited (30 HK) which have mineral

properties of gold deposits, petroleum exploration and coal mine survey and exploration as well as

coal mining machinery research and development from 2005 to present. I have been responsible for

the project investigations, mining, and exploration planning, supervising open pit and underground

production duties. I have also supervised exploration programs in China under the relevant

guidelines of JORC Code to prepare JORC standard Mineral Resource estimates as required by

companies listed on the Stock Exchange for Merger and Acquisition (M&A) activities. For the

graphite mineral deposits of the Company located within the municipal district of Chenzhou City, I

am aware that the deposits are located within the famous microcrystalline graphite metallogenic

belt, and the graphite mineral deposits within the belt mainly exist in the coal-bearing (or graphite)

strata in Longtan Formation, and they belong to the metamorphic soil-like (or cryptocrystalline or

amorphous) graphite deposits which are from coal-bearing clastic rocks.

I have made site visits and on-site investigations on the three Projects in March and July 2021, to

have site seeing, interviewing the relevant key staff and the department leaders for gathering data

and information as required for the mission, and discussing with the relevant technical, operational,

and management personnel of their perspectives on future development plan of the project. I am a


– III-41 –


co-author responsible to prepare and compile the major parts of the Report. I have no involvements

with the Projects and the Company. I have no interest, or intention to receive any interests, either

directly or indirectly, either from the project itself, or from the Company and its subsidiaries.

Mr. Paul Hung:

. graduated with a Degree of Bachelor of Commerce in Banking & Finance from the University

of Canberra, in 2001;

. is a surveyor from Royal Institution of Chartered Surveyors, the United Kingdom;

. is an appraiser from American Society of Appraisers, the United States;

. is a member from Australasian Institute of Mining and Metallurgy, the Australia;

. is a member from Canadian Institute of Mining, Metallurgy and Petroleum, the Canada;

. is a member from Geological Society of America, the United States;

. is a member from Society for Mining, Metallurgy, and Exploration, the United States;

. is a member from Society of Petro-physicists and Well Log Analysts, the United States.

I have been responsible for the project investigations, mining, and exploration planning, supervising

exploration programs, supervising open pit and underground production duties, compiling

independent technical report and valuation report under the ‘‘JORC Code’’ and the ‘‘VALMIN

Code’’, for clients including HanKing (3788.HK), BBMG (2009.HK), China Investment Fund

(612.HK), Real Gold Mining (0246.HK), Synergy (1539.HK), Grand TG (8299.HK), New Times

Energy (166.HK), Jayden Resources (TSX.V: JDN), China Mining (SGX: BHD), for Merger and

Acquisition activities.

On the three Projects, I have interviewed the relevant key staff and the department leaders for

gathering data and information as required for the mission, and discussing with the relevant

technical, operational, and management personnel of their perspectives on future development plan

of the project. I am a co-author responsible to prepare and compile the major parts of the Report. I

have no involvements with the Projects and the Company. I have no interest, or intention to receive

any interests, either directly or indirectly, either from the project itself, or from the Company and

its subsidiaries.

1.10. Limitation and Exclusions

The review was based on various reports, plans and tabulations provided by the Company either

directly from the Project sites and other offices, or from reports by other organisations whose work

is the property of the Company. The Company has not advised the Independent Technical

Consultants of any material change, or event likely to cause material change, to the operations or

forecasts since the date of asset inspections.


– III-42 –


The work undertaken for this Report is that required for a review of the project information and

prepare an Independent Technical Report. This Report specifically excludes all aspects of legal

issues, commercial and financing matters, land titles and agreements, excepting such aspects may

directly influence technical, operational, or cost matters.

1.11. Responsibility and Context of this Report

The contents of this Report have been created using data and information provided by or on behalf

of the Company. The Independent Technical Consultants accept no liability for the accuracy or

completeness of data and information provided to it by, or obtained by it from, the Company or any

third parties, even if that data and information has been incorporated into or relied upon in creating

this Report. This Report has been prepared by the Independent Technical Consultants using

information that is available to the Independent Technical Consultants as of the date stated on the

cover page. This Report cannot be relied upon in any way if the information provided to the

Independent Technical Consultants changes.

1.12. Indemnities

As recommended by the VALMIN Code, the Company has provided the Independent Technical

Consultants with an indemnity under which the Independent Technical Consultants are to be

compensated for any liability and/or any additional work or expenditure resulting from any

additional work required:

. which results from the Independent Technical Consultants’ reliance on information provided

by the Company or to the Company not providing material information; or

. which relates to any consequential extension workload through queries, questions or public

hearings arising from this Report.


– III-43 –


2. PROJECT DESCRIPTION AND LOCATION

2.1. Introduction of the Company

Sino Plus Graphite Holdings Co., Ltd (the ‘‘Company’’) was incorporated in 2020 and is the

ultimate holding company of the three subsidiaries owning the Projects. It is a graphite mining

company in the PRC. Below Fig 2-1 shows the organisation chart of the Company as of the

Effective Date:

Fig 2-1 Organisation chart of the Company as of 31 January 2022

100%

100%

100%

100% 100%

100%

中加石墨控股股份有限公司Sino Plus Graphite Holdings Co., Ltd

郴州市北湖區芙蓉鄉清水江錫多金屬礦業有限公司Chenzhou Beihu Furongxiang Qingshuijiang Tin

Polymetallic Mining Co., Limited

香港中加石墨股份有限公司HongKong Sino Plus Graphite Co., Limited

深圳前海中加石墨有限公司Shenzhen Qianhai Zhongjia Shimo Limited

臨武縣金江鎮滴水帶石墨礦有限公司Linwu Jinjiangzhen Dishuidai Graphite Mining Co., Limited

郴州市北湖區燈盞窩石墨礦業有限公司Chenzhou Beihu Dengzhanwo Graphite Mining Co., Limited

湖南萬合石墨科技有限公司Hunan Wanhe Shimo Keji Limited

2.2. Three Subsidiaries under Control of the Company

The Company has a controlling interest in the following three graphite mining companies:

. Chenzhou Beihu Dengzhanwo Graphite Mining Co., Limited

. Chenzhou Beihu Furongxiang Qingshuijiang Tin Polymetallic Mining Co., Limited

. Linwu Jinjiangzhen Dishuidai Graphite Mining Co., Limited


– III-44 –


Table 2-1 is a list of the names of the Projects acquired by the Company through the attainment of

controlling interests in the companies that formerly controlled those assets, and which became the

Company subsidiaries.

TABLE 2-1 List of Names of Projects acquired by the Company which became its subsidiaries

Project No. Company Chinese Name Company English Name

1 郴州市北湖區燈盞窩石墨礦業有限公司 Chenzhou Beihu Dengzhanwo Graphite

Mining Co., Limited

2 郴州市北湖區芙蓉鄉清水江錫多金屬礦業

有限公司

Chenzhou Beihu Furongxiang Qingshuijiang Tin

Polymetallic Mining Co., Limited

3 臨武縣金江鎮滴水帶石墨礦有限公司 Linwu Jinjiangzhen Dishuidai Graphite

Mining Co., Limited

2.3. Overview of the Three Projects

The following section provides a brief description of the Projects, including their location, produced

commodity and date of acquisition. All the three Projects are located within the famous amorphous

graphite rich mineralisation zone in Chenzhou City, Hunan Province in China. Even though the

three Projects differ in their general condition and produced commodity, they share approximate

geographic location, as shown in Fig 2-2.


– III-45 –


Fig 2-2 Location of Project Dengzhanwo, Project Qingshuijiang and Project Dishuidai

N

Project Dengzhanwo

Project Qingshuijiang

Project Dishuidai

2.3.1. Project Dengzhanwo

Chenzhou Beihu Dengzhanwo Graphite Mining Co., Limited became a subsidiary of the Company

in January 2016. Project Dengzhanwo is still in its development stage and had been idled for years.

2.3.2. Project Qingshuijiang

Chenzhou Beihu Furongxiang Qingshuijiang Tin Polymetallic Mining Co., Limited became a

subsidiary of the Company in January 2016. This is a tin project developed by underground mining

method. As previously mentioned, Project Qingshuijiang had been idled since November 2016. The


– III-46 –


Independent Technical Consultants has been informed that local regulators have inspected this

Project and it was approved that it re-started its operation. The Independent Technical Consultants

team toured the area of the concession and interviewed technical personnel. The visit included the

project offices, control room, project entry and the mineral processing facilities, which consist of aflotation unit. Resources and reserves as of the end of 2014 have been reported. Adequate technical

documentation, including a feasibility report, environmental impact statement and broad geological

information are available for this project.

2.3.3. Project Dishuidai

Linwu Jinjiangzhen Dishuidai Graphite Mining Co., Limited became a subsidiary of the Company

in June 2016.

This Project is operating with adequate capacity. Save and except for the work safety permit and

the licence for blasting operation entities which is in the process for application, this Project has all

the necessary permits. This Project has excellent access by road and is located in a traditionalmining region. This Project had trial production. The site visit included the project offices, project

entry, graphite storage areas, on-site quality laboratory and other miscellaneous facilities. All the

necessary technical documents for the preparation of this Report are available. Although there were

non-compliance incidents relating to environmental issue and safety issue for this Project, the

Company has taken necessary internal control rectification measures to prevent future occurrencesof such non-compliance incidents.

2.4. Project Locations

The assets, as previously mentioned, consist of three mining licences located in Chenzhou City of

Hunan Province, the PRC. Table 2-2 sets out a list of the names of the economic mineral resourcesand/or ore reserves at each of the subject Projects and their location.

TABLE 2-2 Produced Mineral and Location of the Subject Properties

Project No. Project Name Mineral Project location

1 Project Dengzhanwo Graphite, Lead and Zinc Chenzhou, Hunan Province

2 Project Qingshuijiang Graphite, Lead, Zinc and Tin Chenzhou, Hunan Province

3 Project Dishuidai Graphite and Zinc Chenzhou, Hunan Province

The amount of the Lead, Tin and Zinc in the Projects are very little which would not materially

affect the processing, cost and profit of the Projects. As such, this Report will not report and

include description and valuation of the Lead, Tin and Zinc.

2.4.1. The Location of Project Dengzhanwo

Project Dengzhanwo is located approximately 40 km southwest of Chenzhou City, and is

administratively under the jurisdiction of Furong Township, Beihu District, Chenzhou City.


– III-47 –


There is a two-lane road leading to Yangtouling and Anyuan villages of Furong Township and

connected with the Liangtian-Anyuan-Shatian Highway. Furong Township is approximately 55 km

away from Chenzhou City. It has a daily shuttle bus to and from Chenzhou City.

It is connected to S214, the Guiyang-Linwu Provincial Highway,107 National Highway, Beijing-

Zhuhai Expressway and Beijing-Guangzhou Railway.

Fig 2-3 Location Map of Project Dengzhanwo

N

2.4.2. The Location of Project Qingshuijiang

Project Qingshuijiang is located approximately 38 km southwest of Chenzhou City, and is

administratively under the jurisdiction of Furong Township, Beihu District, Chenzhou City. There is

a two-lane road leading to Furong Township in the mining area. Furong Township is approximately

55 km away from Chenzhou City. It is connected to 107 National Highway, Beijing-Zhuhai

Expressway and Beijing-Guangzhou Railway.


– III-48 –


Fig 2-4 Location Map of Project Qingshuijiang

N

2.4.3. The Location of Project Dishuidai

Project Dishuidai is under the jurisdiction of Linsen village, Jinjiang town, Linwu county,

Chenzhou City, and located approximately 72 km southwest from Chenzhou City. Geographical

coordinates of the project are, 112°44′50′′-112°45′10′′E (longitude), and 25°28′51′′-25°29′04′′N

(latitude). There is a 7-km long township highway, which connects the project to the S214

provincial road.

Guiyang county is 35 km to the north of the Project along S214, where it is connected to the Zhi-

Chen-Gui highway. Further to the east are Chenzhou City and an access to the 107-national

highway and Beijing-Zhuhai Expressway (The Beijing-Zhuhai Expressway Road is 2,717 km long

and is part of the China National Highway 105. It links Beijing, the capital of the People’s Republic

of China and the world’s third most populous city and Zhuhai, on the southern coast of Guangdong

province). The available transportation for this Project is convenient.


– III-49 –


Fig 2-5 Location Map of Project Dishuidai

N

2.5. Regional Environment

2.5.1. The Regional Environment for Project Dengzhanwo

The Independent Technical Consultants found that the mining area is a low-to-intermediate

mountainous landform with an elevation range between 500–1,095.5 m above mean sea level. The

overall terrain is high in the east and low in the west. The highest point of the area is the east

ridge, and the lowest is at the northeast corner. The area is in moderate erosions with steep slopes

and the ‘‘V’’ shaped gullies developed. Vegetation is mostly shrubs, and there are a few economic

forests such as cedar and bamboo.

The area belongs to a subtropical climate with subtropical monsoon characteristics and distinct four

seasons. The coldest weather is from December to February, with an average temperature of 4°C–7°C

and short-term frost and occasional light snows. It is rainy and has a high humidity from March to

June. The hottest period is in between July and August with occasional rainfalls, average

temperature of 20°C to 25°C and a maximum of 38°C. From September to November, the

temperature drops gradually, and it becomes dry and cold with frosts. The annual rainfall is

1,187.3–2,247.8 mm in total and the majority occurs in spring and summer. The annual evaporation

is 1,260–1,548 mm, with an average of 1,401 mm. Annually, most wind comes from the south,

followed by the north wind with a maximum speed 10 m/s.


– III-50 –


The Independent Technical Consultants also found that, as part of the Zhujiang Water System,

surface water runs mostly all year round from east to west along branched creeks or valleys. The

residents of the area are sparse. They are engaged mainly in agricultural and mining industry, with

a small number for handicrafts and commercial business. The main food crops are rice, sweet potato

and corn. The economic crops include tung oil and medicinal materials. The local economy has

developed rapidly in recent years due to the rise of the mining industry. Domestic-use water is

mainly based on surface water. There are many small-scale hydropower stations in the area, which

are connected to the large power grid to meet the electricity needs of residents and industries,

including mining.

2.5.2. The Regional Environment for Project Qingshuijiang

The mining area is a steep mid-high mountainous terrain with an elevation of more than 1,000 m.

The main peak of Qinling, one of the ‘‘Five Ridges’’, is in this area. The original Qingshuijiang I

and II projects are located on the west slope, and the Fengyuan Project is located on the east slope.

The Independent Technical Consultants found that the mining area belongs to the mountainous,

warm, and foggy climate zone of the Nanling Mountains. The Nanling, also known as the Wuling,

is a major mountain range in Southern China that separates the Pearl River Basin from the Yangtze

Valley and serves as the dividing line between south and central subtropical zones. The main range

of Nanling Mountains stretch west to east about 600 km from Guilin and Hezhou of the eastern

Guangxi to Ganzhou of the southern Jiangxi, north to south about 200 km from Yongzhou and

Chenzhou of the southern Hunan to Qingyuan and Shaoguan of the northern Guangdong; With its

branches, the whole mountains run west to east 1,400 km.

From December to February, the weather is cold, with short-term frost; March-May is wet and

rainy; June-November is sunnier. According to the information of Chenzhou Meteorological

Station, the annual average temperature of the area is 17.7°C, and the monthly average temperature

is lowest being 5.8°C and highest being 29.2°C. The maximum annual rainfall is 2,247 mm and the

minimum is 1,480 mm. The annual evaporation is 1,260–1,548 mm, with an average of 1,401 mm.

Per reports supplied to the Independent Technical Consultants by the Company, the population of

the area is small, and the residents are scattered, which could also be observed during the site visit.

The main crop is rice, followed by sweet potatoes, corn, and beans. Economic crops include tea,

medicinal herbs, and fruit trees. As could be observed, the main sources of income for residents of

the area are agriculture, forestry, animal husbandry, handicrafts and mining and processing

industries, and the local economy is relatively behind. In recent years, due to the rise of the mining

industry, the economy has developed rapidly.

The area is rich in water resources, and small hydropower stations are developing rapidly, and they

are connected to the local electric power grids and have abundant power resources. Residents use

water from mountain streams, and the water quality is clear and pollution-free. The industrial and

agricultural coal comes from the adjacent fields of Matian, Meitian and Lutang, providing sufficient


– III-51 –


energy for production and living. The mountain stream water system and the local power grid

supply the required water and power capability for the project operations. A significant part of the

workforce is local.

2.5.3. The Regional Environment for Project Dishuidai

Linwu County is a county in Hunan Province, China, it is under the administration of the

prefecture-level city of Chenzhou. It is located on the southern margin of the province and is

adjacent to the southwest of the city proper in Chenzhou. The county is bordered to the north by

Guiyang and Jiahe Counties, to the northeast by Beihu District, to the east by Yizhang County, to

the south by Lianzhou City of Guangdong, to the west by Lanshan County. Linwu County covers

1,383.06 km2.

Linwu County is affiliated to Chenzhou City, Hunan Province and is located in the southernmost

part of Hunan Province, north of the eastern section of the Nanling Mountains. During the site visit,

the Independent Technical Consultants could observe the typical hills and plains in Linwu County,

on the way between Changsha and the project site. Due to the influence of multiple crust

movements, plus weathering and erosion external forces, severe surface cutting is developed,

forming an undulating terrain. It is a mountainous county with hills and plains. There are several

types of landforms in the area, which include plains, hills, depositional landforms, and erosional

and tectonic landforms. An average elevation of the county is 276 meters, and the lowest is 203 m

which is located at the exit of the Wushui River. The geological structure in Linwu is very

complicated, creating conditions for formation of various mineral deposits. These structures include

mainly latitudinal tectonic, meridional tectonic, Xinhuaxia tectonic and vortex tectonic systems.

Rivers in Linwu County belong to the Pearl River and Xiangjiang River systems with Xishan and

Dongshan as their watersheds. There are 400 large and small rivers in the county with an annual

runoff of 1.192 billion m3, an annual per capita surface water volume of 3,870 m3, and annual

average recharge of groundwater for 50,625 m3. The theoretical reserves of hydropower resources

are 75,000 kW, which is slightly higher than the provincial level. The climate of the county is a

subtropical monsoon humid mild climate, with abundant sunshine, and abundant rainfall. It has four

distinct seasons, with a chilly and rainy spring, rainstorms in summer, droughts in fall, and a cold

winter. The extreme high temperature is 39°C, the extreme low is -5.6°C, and the annual average is

17.9°C. The maximum annual rainfall is 1,971 mm, and the average annual wind speed is 2.9 m/s,

with northwest wind as the perennial dominant wind.

The mining area belongs to the mountainous, warm, and foggy climate zone of the Nanling

Mountains. According to the information of Chenzhou Meteorological Station, the monthly average

temperature is 5.8°C for the lowest and 29.2°C the highest. The maximum annual rainfall is 2,247

mm and the minimum is 1,480 mm. The annual evaporation is 1,260–1,548 mm, with an average of

1,401 mm. Crops of the area are mainly rice, followed by sweet potatoes, corn, and beans.

Economic crops include tea, medicinal herbs, and fruit trees. The main sources of income for

residents are agriculture, forestry, animal husbandry, handicrafts and mining and processing

industries. A significant number of secondary activities related to graphite mining were observed in

the area, including ore processing and stockpiling in several towns along the road.


– III-52 –


2.6. Licences And Approvals

The Mineral Resources Law (‘‘MRL’’) is the national law governing the prospection for and

extraction of mines in China and the registration of mining rights. The MRL was promulgated by

the Standing Committee of the National People’s Congress on March 19, 1986, and amended in

1996 and 2009, respectively.

The Ministry of Natural Resources (‘‘MNR’’) and its local bureaus are the primary governmental

bodies administering the mining industry together with other ministries and departments that

regulate other aspects of the mining industry. For example, the Ministry of Ecology and

Environment (‘‘MEE’’) is responsible for environmental protection, and the Ministry of Commerce

is responsible for regulating the import and export of mineral products.

Other sources of law affecting the mining industry include: rules, regulations and guidelines (i) by

the State Council, for example, the Measures for the Administration of Transfer of Mineral

Exploration Rights and Mining Rights; (ii) by local People’s Congresses and their standing

committees at various governmental levels, for example, the Administrative Regulations on Mineral

Resources in Beijing; and (iii) by central-level ministries, commissions, and agencies under the

direct supervision of the State Council, for example, the Administrative Rules on Shanghai Mining

Rights Market.


– III-53 –


The following tables set out the details of the three mining licences that the Company has

controlled:

TABLE 2-3 Mining Licence for Project Dengzhanwo

Project Name Project Dengzhanwo

Name of Certificate Mining licence

Mining Right Holder Chenzhou Beihu Dengzhanwo Graphite Mining Co. Limited

Mining Licence Number C4310002011037120107686

Location Furong Town of Beihu District

Name of Mine Chenzhou Beihu Dengzhanwo graphite mine (郴州市北湖區燈

盞窩石墨礦)

Corporate Entity Limited Liability Company

Mining Method Underground Mining

Minerals to be extracted Graphite and composite recycled lead and zinc

Production Scale 30 ktpa

Licence Area 0.2347 sq km

Validation period Three Years: From 27 January 2015 to 27 January 2018

Excavation Depth 500 m to 1,000 m elevation

Issue Date 27 January 2015

Issuing Authority Chenzhou Land and Resources Bureau (郴州市國土資源局)

Co-ordinates (1980 Xi’an

Coordinate System)

1, X 2814588.84, Y 38379889.33; 2, X 2814143.83, Y

38379566.32

3, X 2813998.83, Y 38379366.32; 4, X 2814208.83, Y

38379106.32

5, X 2814580.84, Y 38379441.32

Source: digital copy provided by the Company


– III-54 –


TABLE 2-4 Mining Licence for Project Qingshuijiang

Project Name Project Qingshuijiang


Mining Right Holder Chenzhou Beihu Furongxiang Qingshuijiang Tin Polymetallic

Mining Co., Limited

Mining Licence Number C4300002010123220097372

Location Taoyuan Vilege Furong Town of Beihu District

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)



Minerals to be extracted Graphite, Lead, Zinc and Tin



Validation period Five Years: From 23 September 2016 to 23 September 2021

Excavation Depth 830 m to 1,500 m elevation

Issuing Authority Land and Resource Bureau of Hunan Province (湖南省國土資

源廳)

Issue Date 23 September 2016

Co-ordinates (1980 Xi’an

Coordinate System)

1, X2816844.02, Y38381381.27; 2, X2816082.02,

Y38382671.27;

3, X2815277.02, Y38382176.27; 4, X2815404.02,

Y38381954.27;

5, X2815404.02, Y38381261.27



– III-55 –


TABLE 2-5 Mining Licence for Project Dishuidai

Project Name Project Dishuidai


Mining Right Holder Linwu Jinjiangzhen Dishuidai Graphite Mining Co., Limited

Mining licence Number C4310002009037120006511

Location Linsen Village, Jinjiangzhen Linwu County, Chenzhou City,Hunan Province

Name of Mine Linwu Jinjiangzhen Dishuidai Graphite Mining Co., LimitedDishuidai Graphite Mine (臨武縣金江鎮滴水帶石墨礦有限公

司滴水帶石墨礦)



Minerals to be extracted Graphite



Validation period Six Years and Two Months: From 13 September 2017 to13 November 2023

Excavation Depth 200 m to 800 m elevation

Issue Date 13 September 2017

Issuing Authority Chenzhou Land and Resources Bureau (郴州市國土資源局)

Co-ordinates (1980 Xi’anCoordinate System)

1, X2820000.00, Y38373035.00; 2, X2820057.00,Y38374108.00;3, X2820057.00, Y38374181.27; 4, X2820263.87,Y38374181.27;5, X2820263.87, Y38374446.00; 6, X2820321.00,Y38374446.00;7, X2820263.87, Y38374511.27; 8, X2820160.00,Y38374592.00;9, X2819913.87, Y38374511.27; 10, X2819913.87,Y38374181.27;11, X2819980.00, Y38374181.27; 12 X2819980.00,Y38374035.00



– III-56 –


The mining licences for Project Dengzhanwo and Project Qingshuijiang have expired as of the date

of this Report. The Company provided a statement letter (see APPENDIX A) issued by the Bureau

of Natural Resources and Planning of Chenzhou City in relation to the renewal of the mining

licence. The Company had been attending to the matters related to the renewal of the mining

licences of Project Qingshuijiang and Project Dengzhanwo. The Independent Technical Consultants

agree that there are no obstacles to the renewal of the mining licences.

All the operations are constrained by the relatively low licensed mining capacities, which are,

however, suitable for the existing infrastructure and extent of the mineral resource base. Significant

investment will be required to expand those resource bases through geological exploration and

justify investment for the expansion of the production capacities.

The Independent Technical Consultants notice that the project with the greatest potential for the

implementation of an expansion project is Project Dishuidai. Project Dishuidai is strategically

located in one of the most prolific graphite mining districts of the Hunan Province, near the city of

Chenzhou, which is a producing facility with trained personnel, high safety standards and the

potential to increasing its resource base through the acquisition and exploration of mineral assets

currently controlled by others. Furthermore, this Project has an excellent reputation as a reliable

supplier of graphite.

The Company will need to obtain the expansion of the licensed production capacity once the

following activities are completed:

. Realisation of negotiations with the owners of adjoining mineral assets.

. Implementation of an exploration plan.

. Preparation of a project development plan.

. Preparation of an amended Environmental Impact Study.

. Obtaining new licences for the expanded production.


– III-57 –


This process may require between 12 and 18 months of work. As of the effective date of 31

January 2022, the following is the status of the required licences for each one of the three mining

operations controlled by the Company:

TABLE 2-6 The Company — Status of Licences as of 31 January 2022

Project

No. Project Name Business Licence Mining Licence

Pollutant

Discharge Permit

Receipt on the

Registration of

Pollution

Discharge for

Fixed Pollution

Sources

Work Safety

Permit

Licence for

Blasting

Operation

Entities Remarks

1 Project

Dengzhanwo

Long-term Refer to

Table 2-3

Expired in

November 2016

Valid until May

2025

N/A Expired in

October 2013

Mining licence is currently

under application.

In September 2021 and

December 2021, the

Chenzhou Natural

Resources and Planning

Bureau has issued proofs

stating that the mining

licence is currently under

application.

2 Project

Qingshuijiang

Long-term Refer to

Table 2-4

Expired in

December 2020

Valid until May

2025

Valid until

December 2023

Expired in April

2020

The Company had been

attending to the matters

related to the renewal of

the mining licence.

3 Project

Dishuidai

Long-term Refer to

Table 2-5

Issued by Chenzhou

Ecology and

Environmental

Protection Bureau

on 22 April 2020

— permit did not

state the expiry date

Valid until April

2025

Expired in

January 2022

Expired in

January 2022

While Project Dishuidai did

not have any production as

at the Latest Practicable

Date, the Company is

attending to the matters

related to the renewal of its

work safety permit and it is

expected that the renewal

would be completed by

September 2022. The

Company plans to attend to

the renewal of the licence

for blasting operation

entities upon obtaining the

new work safety permit.

At present, there are no production at Project Dishuidai, Project Dengzhanwo and Project

Qingshuijiang. Project Dishuidai had trial production. As the Company lacks capital for investment,

it did not apply for an efficient production process, and therefore could not achieve a positive

cashflow in the past trial productions. A massive commercial production can only be started after

acquiring the necessary capital and investment.


– III-58 –


2.7. Property Description

2.7.1. The property of Project Dengzhanwo

Project Dengzhanwo is located about 40 km southwest of Chenzhou City, and is administratively

under the jurisdiction of Furong Township, Beihu District, Chenzhou City. Geographical

coordinates of the project are: 112°47′56′′ to 112°48′24′′E and 25°25′41′′ to 25°26′00′′N.

Chenzhou Beihu Dengzhanwo Graphite Mining Co., Limited was authorised to mine 30 thousand

tons per year by mining licence No. C4310002011037120107686. The term of this licence was

from 27 January 2015 to 27 January 2018. The mining permit area is 0.2347 km2, and the mining

elevation is +500 m to +1,000 m. See APPENDIX A of this Report for the status of this licence as

of 31 January 2022.

As previously mentioned, this Project is located in rough terrain in an area with narrow winding

roads.

2.7.2. The Property of Project Qingshuijiang

Project Qingshuijiang is located 38 km southwest of Chenzhou City, and is administratively under

the jurisdiction of Furong Township, Beihu District, Chenzhou City. Geographical coordinates of

the project are: 112°49′13′′ to 112°50′03′′E and 25°26′23’’ to 25°27′13′′N.

Chenzhou Beihu Furongxiang Qingshuijiang Tin Polymetallic Mining Co., Limited was authorised

to mine 30 thousand tons per year by mining licence No. C4300002010123220097372. The term of

this licence is from 23 September 2016 to 23 September 2021. See APPENDIX A of this Report for

the status of this licence as of 31 January 2022.

Chenzhou Beihu Furongxiang Qingshuijiang Tin Polymetallic Mining Co., Limited is formed by the

integration of Qingshuijiang No. 1 and No. 2 Project(s) and the Fengyuan Project. These integration

processes are common in China and their main goals are to improve safety in the operation by

assigning what used to be smaller artisanal mining operations to organised companies that will be

able to optimise the recovery of the resources.

The geographic coordinates of the integrated project are 112°49′13′′ to 112°50′03′′E and 25°26′23′′

to 25°27′13′′N. The mining elevation is +830 m to +1500 m, and the mining permit area is 1.3302

km2. There are no mineral rights within 500 m around Project Qingshuijiang. Lead, zinc, tin, and

graphite minerals are approved for mining at a production capacity of 30 thousand tons per year.

2.7.3. The Property of Project Dishuidai

Project Dishuidai is under the jurisdiction of Linsen village, Jinjiang town of Linwu county.

The geographical coordinates of the project are: 112°44′50′′-112°45′10′′E, and 25°28′51′′-25°29′04′′

N. The project is a privately owned enterprise, which was founded in 1985 and put into production

in March 1994.


– III-59 –


Linwu Jinjiangzhen Dishuidai Graphite Mining Co., Limited was authorised to mine 30 thousand

tons per year by mining licence No. C4310002009037120006511, which is valid from 13

September 2017 to 13 November 2023.

The project area is 0.1407 km2, with mining depths between 200 m to 800 m in elevation. See

APPENDIX A of this Report for the status of this licence as of 31 January 2022.

2.8. Exploration History

2.8.1.Exploration History of Project Dengzhanwo and Project Qingshuijiang

Project Dengzhanwo and Project Qingshuijiang are located in the same general region, which shares

a common exploration history. The Independent Technical Consultants were provided copies of

relevant studies on these three Projects, including pre-feasibility studies that contain information on

the exploration history of the area. The Independent Technical Consultants have verified by

independent means that the details on the exploration efforts carried out by various entities in the

subject area appear to be consistent and that there is continuity and consistency in the reported data,

as presented in the documents provided by the Company.

The main mineral deposits of the area are tin, lead, zinc, iron, tungsten, and graphite deposits in

Dashanli and Anyuan. Multiple geological surveys and mineralisation inspections have been carried

out by geological agencies in the area. It has been reported that from 1956 to 1958, the Nanling

Geological Team conducted a regional geological survey at a scale of 1:200,000 for the Guiyang

section as the formal exploration for the area.

Records indicate that between 1962 and 1965, a Regional Survey Team of Hunan Province

conducted a review and follow-up work on the above-mentioned regional survey and compiled the

‘‘1:200,000 Guiyang Section (G-49-XXIII) Regional Geology and Mineral Investigation Report’’.

Reportedly, in 1982 the Team 473 of the Hunan Provincial Geological Survey and Mineral

Resources conducted a sediment survey of the water system at 1:50,000 scale and the 1:200,000

petrological surveys for the mineralized region and compiled a survey report on the rare metal

geochemistry of the southern Qinling rock mass in Hunan Province. The reviewed documents

indicate that various geochemical anomalies were defined.

From 1988 to 1990, the Hunan Southern Geological Team under the Geological Survey and Mineral

Resources of Hunan Province reportedly carried out a 1:50,000 regional explorations for the

mineralized region and compiled the 1:50,000 Yongchun-Yizhang (G-49-94-B, F-49-94D) Regional

Geological and Mineral Investigation Report. It has been reported that, from 1999 to 2006, the

Hunan Southern Geological Survey Institute conducted a general investigation of tungsten-tin

mineral resources focusing the southern Qinling rock mass in cooperation with the national land

and resource surveys. The relationship between magmatic rocks, structure and mineralisation in the

project area was initially identified through the above-mentioned work. Additionally, a few new

iron, tin, lead, and zinc deposits were discovered. Even though the above geological work does not


– III-60 –


provide a detailed understanding of the graphite projects in the area, it provides the fundamental

geological information for the assessment. The ‘‘Report on the Evaluation of Qianlishan-Qinling

Tin-Lead-Zinc Mines in Hunan Province’’ was submitted in 2006.

2.8.2.Exploration History of Project Dishuidai

Project Dishuidai is located about 2 km south of the exploration area of the Heye Graphite Project.

It has been reported that, from August 1978 to August 1985, the Hunan Southern Geological Team

under the Geological Survey and Mineral Resources of Hunan Province conducted a detailed

geological survey for graphite mineralisation in the Heye Mining Area of Guiyang County and

completed the detailed geological report of graphite in the Heye Mining Area of Guiyang County in

August 1985 ([85] Hunan Geology Review No. 26).

In May 2008, Exploration and Design Co., Ltd. Of Hunan Zixing Mining Group reportedly

submitted a survey report on the Dishuidai Graphite Mineral Resources in Jinjiang Town, Linwu

County, Hunan Province (June 2003–May 2008), and verified the project had 92,200 tons of

graphite ore (122b + 333), with a mine-out of 18,800 tons and a total Inferred and Indicated

Resources of 110,800 tons. In May 2011, Hunan Southern Geological Survey Institute compiled an

annual reserves report for Project Dishuidai in Jinjiang Town, Linwu County, Hunan Province (June

2008–December 2010) (Chenzhou National Land and Mineral Resources Reserves Review [2011]

No. 62). The graphite resources and reserves were estimated according to the Chinese Geological

Exploration Types — Type II Exploration and an engineering spacing of ‘‘200 × 100 m’’ was used.

The Independent Technical Consultants found that from March 2012 to December 2014, a resource

verification report followed by three annual reserves reports were compiled for Project Dishuidai by

the 408 Team under the Geological Survey and Mineral Resource Development of Hunan Province

(Chenzhou National Land and Resources, Reserves Registration [2012] No. 13), Hunan Yuanjing

Exploration and Design Co., Ltd. (Chenzhou National Land and Resources, Annual Reserves Report

Registration [2013] No. 153, March 2012–December 2012), and Chenzhou Mineral Resources

Development and Service Center (Chenzhou National Land and Resources, Annual Reserves Report

Registration [2014] No. 67, January 2013–September 2013; Annual Reserves Report Registration

[2015] No. 66, October 2013–November 2014).

Reports reviewed by the Independent Technical Consultants indicate that in September 2016, the

Team 311 of the Hunan Provincial Nuclear Industry and Geology Bureau carried out a geological

investigation and surveys for the project, including control measurement, adit and stope engineering

survey, updated geological mapping, surface investigation, stope logging, ore body measurement,

and verification of project resources and reserves. Two mining layers were identified in the upper

section of the Longtan Formation of the project, which are the ore 2 and ore 3 layers.

The Independent Technical Consultants agree with the reported conclusions that the graphite

mineralisation in the project area is strictly controlled by sedimentary strata of the Upper Longtan

Formation in the Upper Permian. It has been observed that the geometry and internal structures of

the mineralisation are moderately complex. The mineralized graphite beds are of small scale, with a


– III-61 –


weak tectonic destruction and consistent thickness and ore quality. This is supported by the

exploration and quality data contained in the reports reviewed by the Independent Technical

Consultants.

It has been reported that an Exploration Type II was carried for the mine deposit, based on the

shape, scale and thickness variation coefficient, and mineralisation continuity of the ore body in the

area, in accordance with the ‘‘Geological exploration regulations for siliceous raw glass materials,

decorative stone, gypsum, chrysotile, wollastonite, talc, graphite deposits (DZ/T0207-2002), with a

spacing for survey control of 200 m × 100 m.

2.9. The History of Mining

2.9.1.Mining History of Project Dengzhanwo and Project Qingshuijiang

The history of mining for Project Dengzhanwo and Project Qingshuijiang is very similar. It has

been reported that mining by private individuals in the area began in 2004, because of the

remoteness, poor communication, and transportation constraints of the area. Even though these two

Projects are now capable of production, some of these constraints are still in place and limit the

possibilities of significantly increasing production without major capital expenditures.

Reportedly, mining in the area started as a few isolated pits. By the end of 2004, there were 15

mining pits developed in an area of 0.3 km2. Records indicate that adit mining reached a length of

more than 40–200 m in 2005, with 7 mining adits and a total 100,000 tons of graphite ore

produced. A series of actions were taken to get mining under control by related governmental

agencies at the time. As is widely known, before China started integrating mining licences and

imposing strict safety and environmental controls, areas with sizeable resources as this project was

developed in an artisanal manner by small miners.

Plans for Graphite Mineralisation Exploitation and Development in Dengzhanwo Mining Area,

Beihu District, Chenzhou City were reportedly compiled and approved, which created favourable

conditions for mining permit transfers in the region. Project Dengzhanwo was licensed by the

National Land and Resources Bureau of Chenzhou City in 2005, after authorities regulated the

mining in the area. Project Dengzhanwo adopted the mining philosophy of opening adits plus an

inclined shaft development, with along strike long-wall and drill-blasting mining method.

Project Qingshuijiang was formed in 2009 by an integration of three Projects, namely the

Qingshuijiang No. 1 Project, the Qingshuijiang No. 2 Project, and the Fengyuan Graphite Project.

The former Qingshuijiang No. 1 Project and the No. 2 Project were built in 2006, and the original

Fengyuan Graphite Project was built in 2004. After the merge, the project adopts the adits plus

inclined shaft development, with a shallow hole mining method. For graphite mining, central split

mechanical ventilation, as well as adits, slopes and short wall mining method with drill and blasting

were used. The project has been divided into three mining areas, which are: 1) mining area one

(formerly Qingshuijiang No. 1 Project), including three project horizons and a few project sections;


– III-62 –


2) mining area two (formerly Qingshuijiang No. 2 Project), consisting of three Projects horizons

and three project sections, and 3) mining area three (formerly Fengyuan graphite Project), where

four project horizons with project sections or prospecting adits were developed.

2.9.2.Mining History of Project Dishuidai

Project Dishuidai is a private owned mining enterprise, which was founded in 1985 and put into

production in March 1994. Production is primarily from the upper section of the Longtang

Formation, namely ore 2 and locally minable ore 3 mining beds. Based on the ‘‘Verification Report

of Graphite Mineral Resources in Jinjiang Town, Linwu County, Hunan Province’’ compiled by the

Team 408 of Hunan Geological Survey and Mineral Exploration and Development in March 2012,

Zhangzhou Tiancheng Exploration and Design Co., Ltd. came up a project resource development

and utilisation plan, with designed production capacity of 30,000 tons/year. The project is

underground mining and actual production capacity is less than 30,000 tons/year.

At present, the project has formed three adit entries, namely the main adit, the ventilation adit and

the secondary adit. The main and ventilation adits have been connected and the secondary one is

being penetrated. The whole adits have formed a complete production system. The project adopts

the development method of horizontal drifts plus blind inclines, and has developed transportation

adits in six different elevations, namely +757 m, +722 m, +687 m (or +691 m), +652 m, +627 m,

+610 m. The short wall caving method is used for mining along the strike of graphite

mineralisation together with roof controls.

Based on annual reserves reports and verifications of resources and reserves of the project since

2003, a summary of the project production and mined-out resources is shown as in the table below.

The cumulative mined out resources was 153,000 tons, with nearly two thirds from the ore 2 and

approximate one third from the ore 3. The mining recovery and loss ratios are about 80 percent, 20

percent respectively.

3. GEOLOGY

This section summarises the information available on the regional and local geology of the subject

Projects.

The regional geology can be defined as the link between global continental geology and local

geology. Modern regional geology seeks to synthesise the work of early explorers all the way to

modern surveys by governments, academic scientists and earth scientists involved in exploration

and exploitation of ores, coal, hydrocarbon, and water resources. In recent years, the information

required for a complete appreciation of regional geology includes a large variety of geochemical

and geophysical observations.

The local geology focuses on more specific features of the geology within the boundaries of the

projects and its immediate area of influence. As previously mentioned, the mineral properties

controlled by the Company located in Hunan Province within the PRC and include diverse

geological environments, as diverse as the geology of China itself.


– III-63 –


The geomorphology of China can be divided into several parts. The historical centre of Chinese

culture is on the loess plateau, the world’s largest Quaternary loess deposit, and on the alluvial

lands at the east of it. The alluvial East China plain extends from just south of Beijing in the north,

to the Yangtze River delta in the south, punctuated only by the igneous Shandong highlands and

peninsula.

South of the Yangtze River, most of the landscape is mountainous, dominated by sedimentary

deposits and by the South China Craton. The most famous scenery in China is found in the karst

landscapes of Guangxi and Yunnan provinces. The alluvial Sichuan basin is surrounded by

mountains, the Qinling mountains to the north and the Himalaya to the west and southwest. Much

of Northeast China, or Manchuria, is dominated by alluvial plains, but the border regions with

Korea are also highly mountainous. In the west, most of the Tibetan Plateau is in China, and

averages over 4,000 metres in elevation. The Yunnan-Guizhou plateau is also an extension of the

Tibetan Plateau.

3.1. Regional Geology

3.1.1. The Regional Geology of Project Dengzhanwo and Project Qingshuijiang

The Independent Technical Consultants reviewed the regional geology corresponding to the area

where Project Dengzhanwo and Project Qingshuijiang are located. The following is a summary of

the information contained in the relevant reports provided to the Independent Technical Consultants

by the Company, which were reviewed by the Independent Technical Consultants in order to form

its opinion about the regional geology of the area.

Given the fact that these two Projects are located in the same geographic area, the same regional

geology applies to the two Projects, as detailed below. The area where the two Projects have been

developed is located in the north-eastern part of the Tongtianmiao Depression, at a junction

between the northern margin of the middle Nanling east-west tectonic belt and the western part of

the southern Suiyang-Linwu north-south tectonic belt. It belongs to the Xianggan Folding Zone of

the South China Folding System.

It has been reported that the structure in the area is complex and featured geologically with a

superimposed triple-structure which was caused by tectonic movements during the Caledonian to

the Indosinian and Yanshanian periods. A nearly east-west basal tectonic framework was formed in

the Caledonian period, and the Cambrian strata constitute the base rocks. The north-south tectonic

framework was primarily formed in the Indosinian period, which is characterised by folds and

fractures in an axial direction of nearly north to south. As the most active period for ore-forming in

the region, the Yanshanian period is characterised by the formation of the north-north-east and

north-east fault structures, represented by the Tianji-Tangguanpu fault (F1) and the Paojinshan-

Chashan fault (F101). The structures are often accompanied by a series of magmatic intrusions and

are closely associated with the mineralisation of the region as the main ore-conducting or ore-

bearing structures.


– III-64 –


Existing reports indicate that, in addition to the absence of the Ordovician and Silurian strata, there

are rock outcrops for strata from the Cambrian to the Cretaceous in the area. The Lower Paleozoic

Cambrian is mainly a set of shallow marine sedimentary construction consisting of clastic, clay

containing siliceous, and phosphorus flysch deposits; the lower section of the Middle Devonian is

the coastal clastic rock deposit, and the upper part of the Middle Devonian to the Triassic consist of

shallow marine carbonate rocks with sea-shore sedimentary clastic deposits as interbeds.

Regionally, the strata occur in plane and mostly continuous deposition, with consistent lithology

and lithofacies. In general, the strata have a relatively stable thickness and have not suffered from

regional metamorphism. Jurassic to Cretaceous are continental lacustrine clastic deposits, which

form tectonic basins of the area. The Cambrian and Devonian strata are the main host rocks of

endogenous metal minerals.

The Independent Technical Consultants understand, from geologic reports provided to it by the

Company, that frequent magmatic activities occurred because of the second stage intrusions during

the Early Yanshan period, the main intrusive rocks appear in form of rock strains or branches. The

lithology is mainly medium fine-grained iron-lithium mica monzonitic granite. The sequence is

characterised by many enriched elements in high intensity, and especially a combination of rare and

coloured elements. The local enrichment of rare elements such as Niobium, Tantalum, Lithium,

Rubidium, and Caesium can constitute industrial ore bodies. The enrichment and accumulation of

Tungsten, Tin, Lead, Zinc and other elements is remarkable, providing a rich material source for

mineralisation. In addition, the granite porphyries of the late Yanshanian distributed as intrusive

veins in an east-west direction, contain a higher tin content and are capable to form large porphyry

tin-polymetallic deposits via local enrichment. The above descriptions are consistent with publicly

available information on the general geology of the area.


– III-65 –


Fig 3-1 Geology of Project Dengzhanwo


– III-66 –


Fig 3-2 Geology of Project Qingshuijiang

N


– III-67 –


3.1.2. The Regional Geology of Project Dishuidai

The Independent Technical Consultants reviewed the regional geology corresponding to the area

where the project is located. The following is a summary of the information contained in the reportsprovided to the Independent Technical Consultants by the Company, which were reviewed by the

Independent Technical Consultants in order to form its opinion about the regional geology of the

area.

The area is well known by the abundance of graphite and other mineral resources and several

technical papers and other scientific publications have been produced by Chinese universities andresearch institutes, which were also used by the Independent Technical Consultants to form its

opinion on the regional geology of the area.

As described in the section corresponding to Project Dengzhanwo and Project Qingshuijiang, which

are located in close vicinity to Project Dishuidai, the area is in the northeastern part of the

Tongtianmiao Depression, at a junction between the northern margin of the middle Nanling east-west tectonic belt and the western part of the southern Suiyang-Linwu north-south tectonic belt. It

belongs to the Xianggan Folding Zone of the South China Folding System. In addition to the

absence of the Ordovician and Silurian strata, there are rock outcrops for strata from the Cambrian

to the Cretaceous in the area. The Lower Paleozoic Cambrian is mainly a set of shallow marine

sedimentary construction consisting of clastic, clay containing siliceous, and phosphorus flyschdeposits; the lower section of the Middle Devonian is the coastal clastic rock deposit, and the upper

part of the Middle Devonian to the Triassic consist of shallow marine carbonate rocks with sea-

shore sedimentary clastic deposits as interbeds.

Regionally, the strata occur in plane and mostly continuous deposition, with consistent lithologyand lithofacies. It has been mentioned that, in general, the strata have a relatively stable thickness

and have not suffered from regional metamorphism. Jurassic to Cretaceous are continental

lacustrine clastic deposits, which form tectonic basins of the area. The Cambrian and Devonian

strata are the main host rocks of endogenous metal minerals. The structure in the area is complex

and featured geologically with a superimposed triple-structure which was caused by tectonic

movements during the Caledonian to the Indosinian and Yanshanian periods. A nearly east-westbasal tectonic framework was formed in the Caledonian period, and the Cambrian strata constitute

the base rocks. The north-south tectonic framework was primarily formed in the Indosinian period,

which is characterised by folds and fractures in an axial direction of nearly north to south.

As the most active period for ore-forming in the region, the Yanshanian period is characterised bythe formation of the north-north-east and north-east fault structures, represented by the Tianji-

Tangguanpu fault (F1) and the Paojinshan-Chashan fault (F101). The structures are often

accompanied by a series of magmatic intrusions and are closely associated with the mineralisation

of the region as the main ore-conducting or ore-bearing structures. Frequent magmatic activities

occurred because of the second stage intrusions during the Early Yanshan period, and the main

intrusive rocks appear in form of rock strains or branches. The lithology is mainly medium fine-grained iron-lithium mica monzonitic granite. The sequence is characterised by large amount

enriched elements in high intensity, and especially a combination of rare and coloured elements.

The local enrichment of rare elements such as Niobium, Tantalum, Lithium, Rubidium, and Cesium


– III-68 –


can constitute industrial ore bodies. The enrichment and accumulation of Tungsten, Tin, Lead, Zinc

and other elements is remarkable, providing a rich material source for mineralisation. In addition,

the granite porphyries of the late Yanshanian, distributed as intrusive veins in an east-west

direction, contain a higher tin content and are capable to form large porphyry tin-polymetallicdeposits via local enrichment.

Fig 3-3 Geology of Project Dishuidai


– III-69 –


3.2. Stratigraphy

This section summarises the Independent Technical Consultants’ findings and impressions on the

stratigraphy of each one of the subject Projects, as contained in the reports provided by the

Company, which were prepared by Chinese professionals with first-hand knowledge of the

properties and who, in many cases were directly involved in the exploration of the subject

properties.

3.2.1. Stratigraphy of Project Dengzhanwo

It has been reported that tock outcrops in the region consists of Hutian Group of the Middle-Upper

Carboniferous, Qixia Formation and Dangchong Formation of the Lower Permian, Longtan

Formation of the Upper Permian, and the Quaternary. However, the exposed strata in the designed

mining area are simple, which only include Lower and Upper Longtan Formation of the Upper

Permian, and the Quaternary.

Rocks for the Quaternary (Q) are scattered on hillsides and low mountain areas, ranging from 0 to 5

m thick. As the primary residual sediments on slopes, the Quaternary consists of clay, and sandy

clay.

The Upper Longtan Formation of the Upper Permian (P2l2) consists of strongly metamorphic fine-

grained quartz sandstone-quartzite, pyrite-nodule-bearing quartz mica hornfels, strongly andalusited

and hornfelized mudstone, strongly metamorphic siltstone, metamorphic quartz siltstone with

strongly graphitized shale to metamorphic siltstone with graphitized andalusited hornfels or quartz

tourmaline hornfels. The degree of metamorphism becomes stronger where it is close to the granite

body. The formation is about 250 m thick containing two layers of graphite mineralisation and one

lead-zinc mineralized seam which is not consistent laterally.

The Lower Longtan Formation (P2l1) is composed of mainly gray thin-layered silty shale, with

gray-yellow medium-layered siltstone, fine-grained quartz sandstone and minor gray-black

carbonaceous shale as interbeds. On top of the formation is a layer of fine to medium-grained

quartz sandstone. The formation is 197–238 m thick and has a conformable contact with the

underlying Dangchong Formation, which is a successive sedimentation.

3.2.2. Stratigraphy of Project Qingshuijiang

Per the consulted reports, the exposed strata in the mining area are simple, which include only the

Upper Longtan Formation and Dalong Formation of the Upper Permian, and the Quaternary.

The Quaternary (Q) is scattered on hillsides and low mountain areas, ranging from 0 to 3 m thick.

As the primary residual sediments on slopes, the Quaternary consists of clay, sandy clay, and

weathered fragments of granite and sandstone. The Upper Longtan Formation of the Upper Permian

(P2l2) consists of sandstone, siltstone, silty mudstone, and other rock types. Rock types of the

formation vary where it is close to the granite body, consisting of strong metamorphic fine-grained

quartz sandstone-quartzite, pyrite-nodule-bearing quartz mica hornfels, strongly andalusited and


– III-70 –


hornfelized mudstone, strongly metamorphic siltstone, metamorphic quartz siltstone with strongly

graphitized shale to metamorphic siltstone with graphitized andalusited hornfels or quartz

tourmaline hornfels. The degree of metamorphism is from strong to weak. Graphite mineralisation

(No. I graphite) are found in the upper portion of the Longtan Formation.

The Upper Permian Dalong Formation (P2d) is only distributed in the southwest corner of the

mining area with limited outcrops. The lower section of the formation is mainly composed of light

gray thin siliceous shale with siliceous rocks, silty mudstones and micritic argillaceous limestones.

The middle section is composed of a dark gray thin layered interbed siliceous mudstone and a

siliceous shale. The upper part is a dark gray thin layered interbed siliceous rock and shale, with

interbed silty shale and argillaceous siltstone.

3.2.3. Stratigraphy of Project Dishuidai

The exposed strata in the mining area are simple, which include only the Upper Longtan Formation

and the Quaternary.

The Quaternary (Q) is scattered on hillsides and low mountain areas, ranging from 0.3 m to 5 m

thick. As the primary residual sediments on slopes and riverbanks, the Quaternary consists of clay,

sandy clay, and weathered fragments of granite and sandstone. The Upper Longtan Formation of the

Upper Permian (P2l2) is primarily a set of coastal-continental clastic deposits, that consists of

sandstone, siltstone, silty mudstone, and other rock types, for approximately 220 m thick.

Rock types of the formation vary where it is close to the granite body, consisting of strong

metamorphic fine-grained quartz sandstone-quartzite, pyrite-nodule-bearing quartz mica hornfels,

strongly andalusited and hornfelized mudstone, strongly metamorphic siltstone, metamorphic quartz

siltstone with strongly graphitized shale to metamorphic siltstone with graphitized andalusited

hornfels or quartz tourmaline hornfels. The degree of metamorphism is from strong to weak.

Graphite mineralisation (No. I graphite) are found in the upper portion of the Longtan Formation.

3.3. Structure


geologic structure of each of the subject Projects, as contained in the reports provided by the



properties.

3.3.1. The Structure at Project Dengzhanwo

The project area is located at the uplifted north end of the Meitian-Matian Syncline Complex. There

are moderately developed structures in the designed project area, which includes folds and faults,

and extends in an overall direction of north-north-east.


– III-71 –


Project Dengzhanwo is situated at the core of Dengzhanwo Syncline, a secondary syncline of the

Meitian-Matian Syncline Complex. Axial direction of the syncline is northeast. Its core is composed

of the Upper Longtan Formation, and both the wings consist of the Qixia Formation and

Dangchong Formation. The syncline is asymmetric with the east wing dipping at an angle 28°–32°

and the west wing at an angle 35°–40°. Faulted destructive features could be found in both wings

of the syncline.

As part of the southwest portion of the Chaling-Linwu Faulted Depression Zone, structural

lineaments of the area extend in a northeast direction at an azimuth of 20°–40°. These fault

structures are compressive and sheared and are characterised with a gently wavy occurrence and

multiple episodes. They dip to the same direction and at a steep inclination. Faults developed in the

mining area include mainly the north-eastward faults F13 and F27. Fault F13 distributes in the

northeast corner of the area and impacts the continuity of the ore layers.

3.3.2. The Structure at Project Qingshuijiang

The mining area is located at the southern end of the Anyuan anticline complex. Due to the erosion

of the Qinling rock mass, the fault structure in the area is relatively developed, and the tectonic line

is generally north-north-east. Despite small folds, there is no large-scale anticline-syncline structure

developed in the area.

The Luoxiangshan syncline, exposed to the southeast of the project, distributes axially in a

northeast direction, and occurs primarily as a symmetry syncline. Its core and the two wings are

composed of the Longtan Formation. The two wings dip north-westward and south-eastward, with a

dip angle for about 65°. There is a second-order anticline and syncline developed in the southeast

wing of the Luoxiangshan syncline. This set of secondary folds controls the distribution and

occurrence of the main graphite ore bodies in this area. A secondary anticline is located on the east

side of Luogui Mountain, striking northeast. Its two wings consist of the Longtan Formation strata,

and dip to northwest and southeast with a dip angle of 58°–65°. A secondary syncline, located on

the east side of the Mahuangao, is composed of the Longtan Formation. The strata of the two wings

dip to the northwest and southeast, with a corresponding dip angle of 58° and 31°.

The fault structures developed in the mining area, include mainly F1, F2, F3, F4, F5, and F6 faults.

Faults F1, F2, F3 occur in the exposed area of the north-western granite of the mining area, which

strike in the northeast and north-northeast direction. The relationship between the faults and the ore

bodies is not obvious. Faults F4, F5 and F6 are distributed in the middle of the mining area, which

constitutes a fault zone with a northeast tend and dipping to the southeast. The fault zone controls

the lead-zinc-tin mineralisation which appear as veins in the project area.

F4 fault, a compression-torsion fault, is distributed in the east side of the Project No. 1 adit access

in the Mining Area Two of the mining area, with an overall trend in northeast direction and a strike

length for 500 m. The fault branches and cuts across the Longtan Formation strata with a gentle and

wavy fault plane striking along 130° and dipping at an angle 61°. A fault fractured zone near the

Mining Areas One and Two is the mineralisation control fault for the No. 2 ore body. It is 1.5–2.5

m wide, with mineralized breccia in it and locally forming lead-zinc-tin ores. F5 fault, a


– III-72 –


compression-torsion fault, is distributed in the Mining Areas One and Two of the mining area, with

a northeast trend and a strike length for 1,100 m. The fault branches and cuts across the Longtan

Formation strata with a gentle and wavy fault plane striking northeast and dipping at an angle 53–

72°.

3.3.3. The Structure at Project Dishuidai

Project Dishuidai belongs to the Lutang-Shatian syncline complex. The syncline passes by north of

the Dashanbei and continues to the north of the Xiangludong for more than 5,000 m long from

north to south, and more than 2,000 m wide from east to west. Subject to an east-west squeezing,

rock formations are developing synclines and anticlines with axial direction from northeast to

southwest.

The syncline in the northwest side of the mining area, displays in a northeast-southwest direction. It

is asymmetrical, with a relatively larger dip angle of the southeast wing which is 410–600, and a

smaller one for the northwest wing at 280–450. Axis plain of the syncline is inclined to the

southeast. Distributed on the southeast side of the mining area, an anticline shows in a northeast-

southwest direction with a nearly vertical axis plain and steep wings both dipping at 450–650.

Overall, it is a symmetrical anticline. A large-scale reverse fault is developed outside the western

part of the mining area, striking northwest to southeast, and dipping to 120° southeast at a dip

angle of 75–85°. The fault cuts across the west side of the Qinling granite rock mass. There are

apparent fractured features along the fault aside of silicification and chlorite alteration in the

granite. No fault structure development was known within the project area. The structural

complexity of the project area is moderate. It is characterised by mainly the fold development and

minor fault impact.

3.4. Magmatic Rock


presence and importance of magmatic rocks, when applicable, on each one of the subject deposits,

as contained in the reports provided by the Company, which were prepared by Chinese

professionals with first-hand knowledge of the properties and who, in many cases were directly

involved in the exploration of the subject properties.

3.4.1.Magmatic Rock at Project Dengzhanwo

The occurrence of magmatic rocks in Project Dengzhanwo area is limited and incomplete based on

technical documents for a nearby property. There are two stages of the magmatic rocks distributed

mainly in the region, one being the third stage of the Early Yanshan period, and the other being the

first stage of the Late Yanshanian.

There are outcrops of the Qinling granite occurring in a large area about 500 m east and 1,500 m

north of the project. These batholithic granites cover an area of 530 km2 and are characterised with

an obviously lateral zoning which consists of an inner transitional zone and an outer-contact zone


– III-73 –


next to host-rocks. The lithology of the inner zone is primarily a gray white to pink fine-medium

grained porphyritic hornblende-graphite-mica granite, and the outer zone is a fine-grained granite

which is generally 1.5–2.0km wide around the rock mass. The contact relationship between granite

and host-rocks is intrusive, and the contact is distinct and dips at various angles, generally above

55°. There is no apparent metasomatic alteration occurred between the rock mass and the host rock.

According to geological dating by the Guiyang Geochemical Institute, the absolute age of the main

granite, i.e., the inner zone, is 158–186 million years, belongs to the Early Yanshan period.

The outer zone of the intrusive granite is 74 million years of age, indicating that the Qinling granite

is a complex rock mass. The rock masses provide ore-forming material and thermal power for

mineralisation. The intrusive granites of the Early Yanshan are most closely related to tungsten-tin-

lead-zinc polymetallic mineralisation.

3.4.2.Magmatic Rock at Project Qingshuijiang

The magmatic rock in Project Qingshuijiang area is relatively more developed and it belongs to the

southwestern part of the Qinling rock mass. There are two stages of the magmatic rocks distributed

mainly in the northwest, east and south of the mining area, one being the third stage of the Early

Yanshan period, and the other being the first stage of the Late Yanshanian.

The rock type is coarse-fine porphyritic (hornblende) biotite feldspar and plagioclase granite, light

flesh red, plaque-like texture, massive structure, medium-grained granitic structure in the matrix.

The rock is composed of phenocryst and matrix. The mineral composition is mainly potassium

feldspar (35–50 percent), plagioclase (20–35 percent), quartz (25–30 percent), biotite (3–6 percent),

and amphibole (0–3 percent). The phenocryst content is 25–40 percent, composed of potassium

feldspar and plagioclase, with a size about 2 × 3.5cm and occasionally quartz phenocrysts.

Potassium feldspar is euhedral-semieuhedral planar, with a size of 1 × 3.5cm, and occurs

occasionally as Carlsbad twin crystals; plagioclase is euhedral-semieuhedral planar shaped, with a

size 0.5 × 1.5cm, and appears as fine and planar polysynthetic twinning with generally 2–3 rings

and mostly positive; quartz is anhedral, slightly cracked, and has a concentrated distribution. The

matrix content is 60–75 percent, which consists mainly of quartz, potassium feldspar, plagioclase,

biotite, and hornblende. Quartz is anhedral and granular, with carbonaceous stains on surface;

feldspar is euhedral-semieuhedral planar; biotite is flaky and semi-planar, brown in colour with

crystal size 0.25 × 0.50–0.50 × 0.50 mm; hornblende is columnar, with the rhombic cleavages in an

angle of 600; for the matrix, it is mainly in medium grained with a size 2–5 mm, and minor fine

grained with a size 0.5–2 mm.

The chemical composition of the rocks is stable, with silicon dioxide content between 68.80–69.38

percent, titanium dioxide 0.51–0.58 percent, and Aluminium oxide about 14 percent. The standard

mineral content is very low which indicates a characteristic transition from normal to aluminium

supersaturation type. There are 26 accessory minerals, which mainly are magnetite, ilmenite,

anatase, vermiculite, pyrite, limonite, rutile, scheelite, cassiterite, galena, sphalerite, zircon,

xenotime, apatite, garnet, hornblende, fluorite, allanite, columbite-tantalite, and andalusite, etc.


– III-74 –


Zircon is brownish yellow to colourless, transparent-translucent, columnar-short columnar, or

acicular. The content of trace elements, such as Tin, Bismuth, Copper, Fluorine, Nickel, etc., is

higher, with tungsten content as high as 500ppm in some samples tested.

The rock masses provide ore-forming material and thermal power for mineralisation. The intrusive

granites of the Early Yanshan are most closely related to tungsten-tin-lead-zinc polymetallic

mineralisation.

3.4.3.Magmatic Rock at Project Dishuidai

Outcrops of the Qinling granite rock mass occur in the northwest of the mining area. According to

Guiyang Geochemical Institute, the granite is 158–186 million-year-old based on isotope detections

and belongs to the early Yanshan Period. It can be divided into zones of internal transition and

outer edge. The outer edge zone is exposed in the project area. The rock is mainly reddish-grey-

white medium-fine to medium-grained, porphyritic biotite granite, and locally as medium-fine

grained garnet biotite granite.

The contact relationship between the rock mass and the country rock is intrusive, which dips at

various angles from different places and generally above 55°. The boundary between the rock mass

and the surrounding rock is clear, and there is no obvious metasomatism near the contact zone.

The intrusion of magma has a great destructive effect on the coal-bearing (or graphite) strata in the

mining area.

3.5. Metamorphism/Alteration


metamorphism/alteration of each one of the subject deposits, as contained in the reports provided

by the Company, which were prepared by Chinese professionals with first-hand knowledge of the


properties.

3.5.1.Metamorphism and Alteration at Project Dengzhanwo

Strata of the mining area have undergone thermal metamorphism due to the intrusion of the Qinling

granite, forming different degrees of metamorphic rocks and deposits. Major rock types related to

the graphite deposits in the mining area are strongly metamorphic quartz-hornfelized mudstone to

quartz-mica hornfels, biotite-andalusite hornfelized mudstone to biotite-andalusite-chiastolite

hornfels, metamorphic siltstone, sandstone and quartzite, and siliceous rock with interbedded

amphibole-hornfelized siliceous rock to marbleized siliceous limestone, etc.


Formation. Based on available data of the area, graphite mineralisation was formed by

recrystallisation of hornfels and anthracite. Graphite mineralisation of anthracite is typical in area

with a moderate hornfelisation.


– III-75 –


According to technical information for a neighbouring project, silicifications and chloritisations

often appear in the fault fractured zone and host rock contacts, which are closely related to lead,

zinc and tin mineralisation. Generally, as one of the important signs of mineralisation in this area, a

stronger silicification and chloritisation indicates a better mineralisation. Silicifications mainly

develop along the fractured zone of a fault. After the alteration, colour of the rock becomes lighter,

as light gray or grayish white. Quartz content increases and rocks become denser and harder,

especially towards the fault contact close to the foot wall and hanging wall. Silicification occurs as

cement, irregular nodules, and veins in the fault zone, or nearby fractures. More common

chloritisations fall into primarily the low temperature hydrothermal alteration category and appear

mainly in fractured zones or towards the fault boundary, with various degree of the green colour.

Chloritisations occurring in the high temperature stage also has a certain relationship with the lead,

zinc, and tin mineralisation.

3.5.2.Metamorphism and Alteration at Project Qingshuijiang

Argillaceous sandy shale appears around magmatic rock boundaries, near the Longtan Formation

and the Dalong Formation contacts. Granite next to the fractured fault zone has undergone different

degrees of alteration, forming hornfelized zones, often with andalusite hornfels, quartz hornfels,

sericite hornfels, altered granite, etc. Graphite ore beds were formed by thermal metamorphism of

interbedded coal seams in the Longtan Formation. Silicifications and chloritisations often appear in

the fault fractured zone and host rock contacts, which are closely related to lead, zinc and tin

mineralisation. Generally, as one of the important signs of mineralisation in this area, a stronger

silicification and chloritisation indicates a better mineralisation. Silicifications mainly develop along

the fractured zone of a fault. After the alteration, colour of the rock becomes lighter, as light gray

or grayish white.

Quartz content increases and rocks become denser and harder, especially towards the fault contact

close to the foot wall and hanging wall. Sillicification occurs as cement, irregular nodules, and

veins in the fault zone, or nearby fractures. More common chloritisations fall into primarily the low

temperature hydrothermal alteration category and appear mainly in fractured zones or towards the

fault boundary, with various degree of the green colour. Chloritisations occurring in the high

temperature stage also has a certain relationship with the lead, zinc, and tin mineralisation.

3.5.3.Metamorphism and Alteration at Project Dishuidai

Due to the invasion of Qinling granite, strata in the mining area undergo different degrees of

thermal metamorphism, forming various metamorphic rocks and mineralized seams. These rocks

include mainly strong quartz mica hornfelized mudstone-quartz mica hornfels; biotite andalusite

hornfelized mudstone-biotite andalusite stellite hornfels; metamorphic siltstone, sandstone, and

quartzite; siliceous limestones or tremolite hornfelized lithified siliceous rock-dolomatized siliceous

limestone; anthracite-graphitized anthracite-graphite ore.


– III-76 –



Formation. Based on the existing information in the project area, both the roof and floor of the

graphite ore are strongly hornfelized rocks. Typically, strongly graphitized anthracite occurs where

moderately hornfelized rocks present.

3.6. Mineralisation


mineralisation of each one of the subject deposits, as contained in the reports provided by the



properties.

3.6.1.Mineralisation at Project Dengzhanwo

Graphite deposits in this area are formed by thermal metamorphism of the interbedded coal seams

in the Longtan Formation. Ore bodies are controlled by coal-bearing strata of the Longtan

Formation. The genetic style of the deposits is a metamorphic type of coal-bearing clastic rocks,

and the industrial type of the deposits is amorphous graphite deposits.

There are two graphite seams as major mining targets according to available resource report and

prospecting data, which are associated with lead and zinc mineralisation as well as silver deposits

in the project area. The graphite deposits are distributed in the Upper Longtan Formation, occurring

as relatively consistent layers between the biotite-andalusite mudstone and quartz sandstone. Both

the above mudstone and basal sandstone are strongly metamorphic. Locally quartzite underlies the

graphite ore and the strongly metamorphic hornfelized silty mudstone overlies the graphite beds as

a fake roof.

Generally, the interval between two graphite layers is 25 m and both are minable over most of the

area.

3.6.2.Mineralisation at Project Qingshuijiang

The metal ore body in this area is located in the NE-trending fault or the inter-layered fracture

zone. The shape, occurrence and scale of the ore body are strictly controlled by the fracture zone.

Mineralisation come from magmatic hydrothermal fluid, superimposed with multiple enrichments in

a favourable fractured zone environment. There are clear boundaries between the ore body and the

host rock. Ores have a simple texture and structure with few replacements. The ore body occurs as

veins or in a layer-like shape and is formed mainly by way of filling. The genetic style of metal

deposits in this area should be high-medium temperature magmatic hydrothermal filling and belongs

to the industrial type of cassiterite-sulphide vein type tin deposits.


– III-77 –


Graphite deposits in this area are formed by thermal metamorphism of the interbedded coal seams

in the Longtan Formation. Orebodies are controlled by coal-bearing strata of the Longtan

Formation. The genetic style of the deposits is a metamorphic type of coal-bearing clastic rocks,

and the industrial type of the deposits is amorphous graphite deposits.

3.6.3.Mineralisation at Project Dishuidai

Graphite ores in the mining area mainly exist in the coal-bearing (or graphite) strata in the upper

part of the Permian Longtan Formation, and they belong to the metamorphic soil-like (or

cryptocrystalline or amorphous) graphite deposits which are from coal-bearing clastic rocks.

According to the underground mining adits and stopes, there are mainly three layers of graphite

ores, namely ore 1, 2, and 3 as follows:

Fig 3-4 Cross-sections for 2# and 3# Graphite Ore Seams at Project Dishuidai

N


– III-78 –


Fig 3-5 Correlation between surface and underground workings at Project Dishuidai

N


– III-79 –


Graphite Ore 1

It is a non-mining layer which ranges 0–0.1 m in thickness. It is extremely unstable, lenticular and

structurally complicated, with hornfelized silt stone as the roof and metamorphic quartz sandstone

as its floor.

Graphite Ore 2

It is the main mineable seam of the project. It occurs in both wings of an anticline, which are

controlled by mining and mining engineering in the project area. The ore seam strikes at about 30

degrees north-northeast, and dips at an inclination angle of 45–60 degrees. The eastern wing is

steep, and the west wing is gentle. The thickness of the ore seam is 0.6–3.00 m, with an average of

2.16 m. It is a medium-thick layer with relatively stable thickness and a simple structure. The roof

is hornfels-bearing silty mudstone and the floor a fine-grained quartz sandstone. There are 9 survey

points for the graphite layer thickness and 9 graphite minable locations in the east wing of the

seam. There are 8 graphite thickness survey points and 7 minable points in the west wing. No new

prospecting pit controls are available for the west wing, and hence an unclear mineralisation and

characteristics down to the deep. There is a non-mineralized parting layer at levels of +757 and

+687 respectively in the east wing, which is 0.05–0.25 m thick. The content of waste material in

the parting layer is about 2.5 percent and can be easily hand-selected and has little effect on the

produced mineral quality.

Graphite Ore 3

It is one of the locally minable layers of the project, is distributed in the core of the anticline within

the mining permitted area. It strikes about 30 degrees north-northeast, with a nearly vertical axial

plane and a dip angle of 48–65 degrees. It is steep in the east wing and gentle for the west wing.

Thickness of the ore layer is 0.2 to 3.30 m, and the average thickness is 1.35 m, with an unstable

thickness, and a lenticular occurrence. The roof of the ore is hornfels-bearing silty mudstone, and

the floor is composed of fine-grained quartz sandstone. There are 24 graphite thickness survey

points and 19 graphite minable points in the east wing of the ore. No new prospecting pit exists for

mine engineering controls, and it remains unclear for the mineralisation characteristics at depth.

Very few waste partings exist which occur in the east wing at the level of +610 m and the west

wing at the level of +629 m, with parting thickness between 0.09–1 m, and waste content range

from 3.4–7.1 percent. It is easy to select by hand and has little effect on mineral quality produced.

There are 14 graphite thickness survey points and 14 minable locations in the west wing of the ore

seam. The thickness of the ore layer ranges between 2.45–2.80 m based on a total of 14 graphite

thickness points and 14 recoverable points measured.

The similarities, differences and correlation of the three graphite ore bodies was discussed at length

on site during the Independent Technical Consultants’ first site visit. The local personnel is

knowledgeable and has a thorough understanding of the local mineralisation.


– III-80 –


The ore seam correlation between the Graphite Ore 2 and 3 is based on a comprehensive analysis,

using the marker bed, mineral compositions, and interval thickness, etc. The marker bed, a strongly

metamorphic quartz sandstone occurs as an interbed separating the Graphite Ore 2 seam above and

Ore 3 below. Interval thickness between the graphite seam is related to whether a metamorphic

sandstone or hornfelized argillaceous rock is developed together with their qualities. The more the

metamorphic sandstone is developed, the smaller the spacing between the ore seam is.

Reportedly, the depth of the weathering and oxidisation zone in the area is usually between 30–50

m below surface. The Ore 2 is shallow with outcrops in the project area, and possibly weathered

and oxidised. Graphite Ore 3 seam is distributed 80–100 m below the surface, and there is no

weathering and oxidation developed in the horizon.

3.7. Quality

This section presents the quality of the ore contained in the identified mineralized bodies of each

project. The Independent Technical Consultants have reviewed the reported qualities contained in

the various Chinese reports supplied by the Company and compared them with drillhole information

and other documents containing exploration and testing information.

It is important to highlight that, in the case of the subject properties, the quality of the ore was

well-documented, and the quality tests were performed under Chinese standards by certified 92

laboratories.

3.7.1.Ore Quality in Project Dengzhanwo

The graphite ore body belongs to a type of sedimentary graphite deposit which was formed by

thermal metamorphism of original sedimentary coal seams and associated with the adjacent Qinling

granite intrusion. The graphite ore layers of the project area are dominated by cryptocrystalline-

phanerocrystalline textures. It is soft, brittle, slippery, hand-staining, with steel grey colour, metallic

luster, low Mohs hardness and a density of 2.02. Microscopic characteristics of graphite ore in the

area are, fine flaky, semi-euhedral to anhedral crystals and massive structures with a diameter of

0.1–3 microns, average 1.5 microns. Under the reflective microscope, it is colourless, with double

reflection and strong heterogeneity. It is mainly composed of graphite. Other minerals include flaky

kaolinite, tabular illite and irregular granular quartz, which appear mostly as agglomerate, irregular,

lenticular aggregates, or occasionally star-shaped dissemination within the graphite ore.

The associated lead-zinc-silver mineralisation belongs to a medium-low-temperature hydrothermal

sulfide type of deposits. It consists of mainly metallic sulfide minerals of galena, sphalerite, pyrite,

etc., and non-metallic minerals mainly calcite, quartz, clay minerals and so on. Lead exists

primarily as galena, and zinc mainly comes from the sphalerite mineral. The ore is dominated by

semi-euhedral to euhedral granular crystalline and mosaic, replacement textures, with mainly

disseminated and followed by agglomerate, or banded structures. According to an existing chemical


– III-81 –


analysis for four lead-zinc ore samples selected, the content of Pb is 2.67–1.8 percent, Zn 2.28–1.8

percent, and Ag 0–9g/ton. Their thickness weighted-average content is Pb 2.34 percent, Zn 1.99

percent, and Ag 5g/ton.

3.7.2.Ore Quality in Project Qingshuijiang

The lead-zinc-tin ore body belongs to a tin-containing lead-zinc sulphide mineral type of deposits.

It consists of mainly minerals of pyrite, cassiterite, galena, sphalerite, with less amount of

pyrrhotite and arsenopyrite; non-metallic minerals are mainly quartz, sericite, chlorite, followed by

feldspar, biotite, tourmaline, fluorite, epidote, tremolite, hornblende and so on. The ore is

dominated by semi-euhedral to anhedral granular texture and disseminated or fine vein structure.

Cassiterite, light yellowish brown to brownish black colour, adamantine to oily luster, semi-

euhedral to anhedral and less amount of biconical columnar crystals with colorful rims and bands.

Its crystal sizes are generally 0.09–0.20 mm, occurring often amount quartz and sulfide minerals in

the shape of micro-veins. Galena, lead gray or dark gray colour, a reflected colour of pure white,

homogeneous crystals with cubic cleavages and angular concaved surficial features, hardness 1–1.5,

reflectivity 40–42 (white), crystal size 0.02 to 1.0 mm. It appears mainly as anhedral to semi-

euhedral crystals in the form of disseminated, fine veins, or nodules, accompanying with pyrite,

magnetite, chalcopyrite and other associated crystals, or as anhedral crystals infilling among barites.

There are two generations of sphalerite, of which in dark brown is formed earlier than those in light

yellow. A darker colour often indicating a higher iron content of the minerals. Crystals have a

medium hardness, reflectivity 18, 0.01 to 0.25 mm in size, and a polarised colour of light yellow,

tan, gray. Semi-euhedral to anhedral, and homogeneous crystals, with disseminated and aggregated

structures.

Some are broken into breccia with quartz cementations. Graphite, a black colour crystal with a steel

gray, lead gray, strong metallic luster, density 2.02 tons/cubic meter, hardness less than 2, uneven

fracture, argillaceous, slippy, easy hand-staining, and falky, with fine granular aggregated

structures.

According to the existing chemical analysis, main interested components of the ores are Tin, Lead

and Zinc. The Tin grade in the ore is 0.214–4.163 percent, with an average of 1.57 percent; the

Lead grade is 0.01–4.46 percent, with an average of 1.41 percent; the Zinc grade is 0.01–4.52

percent, with an average of 1.60 percent. At the conjunction and dislocated areas by structures in

two different directions, enriched ore bodies are formed with an increased thickness and total

content of the interested components.


– III-82 –


3.7.3.Ore Quality in Project Dishuidai

The graphite ore body belongs to a type of sedimentary and thermal metamorphic graphite deposit

and is an earthy or cryptocrystalline graphite ore. It consists of mainly minerals of graphite,

muscovite, sodium bicarbonate and so on. The ore is dominated by cryptocrystalline texture, with

irregular occurrence and massive structures. It is soft, brittle, slippery, hand-staining, with steel

gray colour, semi-metallic luster, low density and a Mohs scales of mineral hardness of 1.

Microscopic characteristics of graphite ore in the area are, black to bright black colour and flaky,

cryptocrystalline texture, massive structure, semi-metallic luster. Under the reflective microscope, it

is colourless, with double reflection and strong heterogeneity. Results of X-ray powder diffraction

analysis show that the main mineral composition graphite content of 81.4 percent, muscovite

content of 16.1 percent, sodium bicarbonate content of 5.21 percent. The Independent Technical

Consultants have inspected the ores and ore seams underground and found the quality of the

graphite ores are excellent as described above. The Independent Technical Consultants have also

inspected the orebodies at different levels, concluded that continuity of the major graphite orebodies

being at very good condition as stated in the Chinese Resource/Reserves Verification Reports

provided by the Company. Figure 3-6 shows the Independent Technical Consultants inspecting the

graphite resources at Level 625 m of Project Dishuidai in July 2021.

Fig 3-6 Graphite Ores at Level 625 m of Project Dishuidai

The graphite ore consists of 70–85 percent fixed carbon, 2–3 percent water, 1–5 percent volatile

matter, 3–25 percent ash, and 0.05–0.08 percent total sulfur. It is a high-quality cryptocrystalline

graphite ore with low water, low to medium ash, and extremely low sulfur content. Sample testing

and analytical results for annual inspection and resources verification since 2008 indicate that the

graphite ore is a thermal metamorphic graphite deposit, with a stable and high content of the fixed

carbon. The graphite deposit was formed by coal seam contact metamorphism, with a high degree

of graphitisation and quality.


– III-83 –


4. MINERAL RESOURCES

The Independent Technical Consultants have collected all available geological data and verified

under the guidelines of JORC Code 2012. The mineral resources and reserves for Project

Dengzhanwo, Project Qingshuijiang, and Project Dishuidai are classified into the categories of the

JORC Code.

The JORC Code presents the following definition of Resources:

A ‘‘Mineral Resource’’ is a concentration or occurrence of solid material of economic interest in or

on the Earth’s crust in such form, grade (or quality), and quantity that there are reasonable

prospects for eventual economic extraction. The location, quantity, grade (or quality), continuity

and other geological characteristics of a Mineral Resource are known, estimated, or interpreted from

specific geological evidence and knowledge, including sampling. Mineral Resources are sub-

divided, in order of increasing geological confidence, into Inferred, Indicated and Measured

categories.

4.1. Data Verification

The Independent Technical Consultants reviewed the resource information received from the

Company and prepared an independent estimate of resources and ore reserves, applying the criteria

defined by the JORC code 2012 Edition and the best practices of the industry. However, even if the

geological data and resource/reserves information received from the Company were produced by the

qualified Chinese geological investigation teams, the Independent Technical Consultants must check

the reliability of the information and the methodologies used to obtain the information.

The Independent Technical Consultants have performed data verification for all the three Projects.

The Independent Technical Consultants noted that the latest geological investigation and/or resource

and reserves verification reports were prepared by two qualified geological exploration teams, one

is the Xiangnan Geological Exploration Institute of Hunan Province (Xiangnan Institute), and the

other is the 311 Brigade of Hunan Nuclear Industry Bureau (311 Brigade).

The latest geological investigation and resource/reserves verification report for Project

Qingshuijiang was prepared in December 2010 by the Xiangnan Institute, while the latest

geological investigation and resource/reserves verification report for Project Dengzhanwo was

prepared in November 2014 by Chenzhou Mine Development Service Centre. The Independent

Technical Consultants have made site visits to the Three Projects (located only a few km away).

The Independent Technical Consultants prepare the statements of the resources and reserves under

the JORC code standards.

For Project Dishuidai, the Independent Technical Consultants have visited the project site and

investigated the graphite ore seams exposing in the underground tunnels at different development/

exploration levels. The latest Verification Report of the Resources/Reserves for Project Dishuidai

prepared by the 311 Brigade of Hunan Nuclear Industry Bureau (311 Brigade) was submitted and


– III-84 –


approved by the relevant Chinese government bureau in 2016. The government royalties for the

verified amount of the mineral resources and ore reserves of the project had been paid by the

licence owner after approving.

The 311 Brigade team of 6 technical professionals had worked at Project Dishuidai site for 20 days

in September 2016. The Independent Technical Consultants checked the resources/reserves

verification methodologies used by the 311 Brigade team and agrees that the geological works and

the methodologies used were meet the requirements of the estimation of the Mineral Resources and

Ore Reserves defined in the JORC code 2012. The following provides the details of the verification

methods and measures used by the 311 Brigade:

4.1.1.Additional Geological Engineering and Sampling for Verification

The 311 Brigade team had collected and reviewed the previous geological exploration works and

investigation reports done before their works started. In addition to the previous works, the 311

Brigade had done some extra geological engineering works as required for the updating of the

mineral resources and ore reserves. Table 4-1 summaries the major works that the brigade carried

out during their investigations.

TABLE 4-1 Additional Geological Engineering for the Resources/Reserves Verification Carried

out by the 311 Brigade

Project Unit Quantity Project Unit Quantity

Text Data Collection Per Report 5 Previous Tunnel Survey Utilised m 312

Geological Maps Collection Per Map 18 Goaf Survey Place 1

1:2000 Geological Survey

Revamping

Km2 0.1407 Tunnel Geological Logging m 53.4

Route Survey km 3.2 Ore Seams Investigated Seam 2

(2# and 3#)

Use of Near Adit Points Point 2 Golf Investigation Place 1

Underground Wire Survey Point Point 38 Ore Seam Thickness Survey

Point Used

Point 3

Geological Observation and

Survey Points

Point 12 Ore Sampling for Analysis Piece 1

Additional Tunnel Survey m 199.5 Report with Maps Submitted Set 4

Fig 4-1 shows a sketch map of prospecting results for a fresh ore body of 3# graphite ore seam

exposing at +629 m prospecting drift.


– III-85 –


Fig 4-1 Sketch map of Prospecting Results of a Fresh Ore Body Exposing Point of 3# Graphite

Ore Seam

4.2. Graphite Ore Rock/Mineral Identification and Chemical Analysis

The Independent Technical Consultants have checked the previous testing results of ore industrial

analysis as well as the mineral identifications and chemical analysis of the ore samples and

accepted the testing results for the estimation of the mineral resources and ore reserves for Project

Dishuidai after considering that the results were carried out by different qualified labs and the

verifications were approved by the relevant government bureaus. Table 4-2 shows the testing results

of the industrial analysis of the graphite ore samples carried out by relevant qualified laboratories

from 2008 to 2016. Table 4-3 and Table 4-4 show the results of the Chemical Analysis and the

Rock/Mineral Identification Analysis respectively undertaken by the Analysis Centre of the School

of Geosciences and Information Physics of Zhongnan University.


– III-86 –


TABLE

4-2Te

stingResults

oftheIn

dustrial

Ana

lysisof

theGraph

iteOre

Samples

Sampled

from

Ore

Seam

sof

2#an

d3#

atPr

ojectDishu

idai

from

2008

to

2016

(Abb

reviationna

mes

mod

ifiedby

theIn

depe

nden

tTe

chnica

lCon

sulta

nts)

Ore

Seam

Num

ber

Inve

stigator

Indu

strial

Ana

lysis

Specific

Gra

vity

(t/m

3 )

Yea

rof

Testin

gThe

Nam

eof

theLab

W(%

)V

(%)

A(%

)FC

(%)

S(%

)CV

(Cal/g)

2#Hun

anZixinEx

ploration

2.09

1.56

3.14

85.30

0.05

21.70

2008

Unk

nown

408Briga

deof

Hun

anBureauof

Geo

logy

andMineral

Resou

rceDev

elop

men

t77

.80

1.70

2012

Ana

lysisCen

terof

theSc

hool

of

Geo

scienc

esof

Zhon

gnan

Unive

rsity

3#40

8Briga

deof

Hun

anBureauof

Geo

logy

andMineral

Resou

rceDev

elop

men

t78

.05

1.70

2012

Ana

lysisCen

terof

theSc

hool

of

Geo

scienc

esof

Zhon

gnan

Unive

rsity

Che

nzho

uMineral

Dev

elop

men

tCom

preh

ensive

ServiceCen

tre

0.74

3.98

24.59

70.69

0.06

852

611.70

2014

TheLa

bsof

theSa

meInve

stigator

311Briga

deof

theHun

anNuc

lear

Indu

stry

Bureau

0.70

3.91

18.74

77.35

0.12

1.70

2016

TheLa

bsof

theSa

meInve

stigator

Notes:W

—Water;V

—Volatile

compo

nents;

A—

Ash

conten

ts;FC

—Fixed

Carbo

n;S—

Sulphu

r;CV

—CalorificValue

Source:Resou

rces

andReservesVerifica

tionRep

ortof

Project

Dishu

idai

prep

ared

bythe31

1Briga

deof

Hun

anNuc

lear

Indu

stry

Burea

uin

2016

,prov

ided

bytheCom

pany


– III-87 –


TABLE 4-3 Chemical Analysis of the Graphite Ore Samples from Project Dishuidai by the

Analysis Center of the School of Geosciences and Information Physics of Zhongnan University in

2012

Ore Seam No.

Chemicals and the Contents (%)Subtotal ofthe Ashcontents

(%)Carbon Ash Chemicals Water

C SiO2 Al2O3 MnO2 K2O H2O

2# 77.80 3.10 11.45 2.95 2.67 2.13 20.17

3# 78.05 4.50 10.30 3.20 2.05 1.90 20.05

Average of 2# and 3# 77.93 3.80 10.88 3.08 2.36 2.02 20.11

Source: Attached file in the verification report prepared by the 311 Brigade in 2016, provided by the Company

TABLE 4-4 Rock/Mineral Identification Analysis of the Graphite Ore Samples from Project

Dishuidai by the Analysis Center of the School of Geosciences and Information Physics of

Zhongnan University in 2012

Sample No.MacroscopicFeatures

Structural Features

X-rayDiffraction:Testing DValue/

Standard DValue

Infrared AbsorptionSpectrum (IR)

GraphitisationDegree (%)

Conclusion

S1Loose and

earthy

Flake Structure and

Cryptocrystalline

texture

3.35763/3.37

1.67956/1.68

1.23034/1.23

There is no strong

absorption peak near

1450 and no variable

multiple weak

absorption bands

79

High grade

cryptocrystalline type

graphite ore

S2Earthy and

Plate status

3.55550/3.37

1.67940/1.68

1.23039/1.23

87

High grade

cryptocrystalline type

graphite ore

Source: Attached file in the verification report made by 311 Brigade 2016, provide by the Company


– III-88 –


After verifying the analysis data of the Table 4-2, Table 4-3 and Table 4-4 and compared with the

data from other graphite projects (such as the well-known Lutang Graphite Project, straight distance

around 15 km within the same mineralisation zone, the Independent Technical Consultants accept

the testing results produced by the Analysis Center of the School of Geosciences of Zhongnan

University, and summaries the key characteristics of the graphite ores of Project Dishuidai (contents

were averaged) as sown in Table 4-5 below:

TABLE 4-5 Key Characteristics of the Graphite Ores of Project Dishuidai as of 31 January 2022

Graphite Grade (FC/%) H2O (%) V (%) A (%) FC (%) S (%) CV (Cal/g)Density(t/m3)

75~80 1.0~2.0 3.1~3.9 18.5~22.5 75~80 0.05~0.10 5126 1.70

Conclusions High grade cryptocrystalline type graphite deposits with very low sulphur content.

Notes: W — Water; V — Volatile components; A — Ash contents; FC — Fixed Carbon; S — Sulphur; CV — Calorific

Value

4.3. Resource and Reserves Estimation

4.3.1. Introduction of The Chinese Resource/Reserves Classification System

The resource/reserves estimation or verification presented by the Chinese operators were reported

using the new Chinese Resource/Reserves Classification System, which was established by the

Ministry of Land and Resources (‘‘MLR’’) in 1999.

This system attempts to recognise economic parameters as well as parameters related to geological

levels of confidence and is based on the complex three-dimensional United Nations Framework

Classification System. It is based on a three-dimensional matrix or three-number code in the form

of ‘‘123’’:

The first digit represents economics:

1 — Economic;

2 M — Marginal Economic;

2S — Sub-Marginal Economic;

3 — Intrinsic Economic.


– III-89 –


The second digit represents the level of technical study:

1 — Feasibility Study;

2 — Pre-Feasibility Study;

3 — Scoping Study or no Study

The third digit represents level of geological confidence:

1 — Measured;

2 — Indicated;

3 — Inferred;

4 — Reconnaissance.

The United Nations Framework Classification (UNFC) for Energy and Mineral Resources is a

universally applicable scheme for classifying/evaluating energy and mineral reserves/resources.

Most importantly, it allows a common and necessary international understanding of these

classifications/evaluations. The Classification is designed to allow the incorporation of currently

existing terms and definitions into this framework and thus to make them comparable and

compatible. This approach has been simplified through the use of a three-digit code clearly

indicating the essential characteristics of extractable energy and mineral commodities in market

economies, notably (i) degree of economic/commercial viability; (ii) field project status and

feasibility; and (iii) level of geological knowledge.

The UNFC is a flexible system that is capable of meeting the requirements for application at

national, industrial and institutional level, as well as to be successfully used for international

communication and global assessments. It meets the basic needs for an international standard

required to support rational use of resources, improve efficiency in management, and enhance the

security of both energy supplies and of the associated financial resources. Furthermore, the new

classification will assist countries with transition economies in reassessing their energy and mineral

resources according to the criteria used in market economies.

The following classes of recoverable coal quantities are defined:

. Mineral Reserves including:

. Proved Mineral Reserves: code 111

. Probable Mineral Reserves: codes 121 + 122

. Mineral Resources (Additional or Remaining Resources) including:


– III-90 –


. Feasibility Mineral Resources: code 211

. Pre-Feasibility Mineral Resources: codes 221 + 222

. Measured Mineral Resources: code 331

. Indicated Mineral Resources: code 332

. Inferred Mineral Resources: code 333

. Reconnaissance Mineral Resources: code 334

Class 111 is of prime interest to an investor since it refers to quantities that are: economically and

commercially recoverable (number 1 as the first digit); have been justified by means of a feasibility

study or actual production to be technically recoverable (number 1 as the second digit); and are

based on reasonably assured geology (detailed exploration for solids) (number 1 as the third digit).

Table 4-6 summarises the New Chinese Resource/Reserves Classification System:

TABLE 4-6 New Chinese Resource/Reserves Classification Scheme in Comparison to JORC

D E & F

Designedmining lossaccounted

RecoverableReserve

(111)

ProbableRecoverable

Reserve(121)

ProbableRecoverable

Reserve(122)

Designedmining loss

notaccounted

(b)

BasicReserve(111b)

BasicReserve(121b)

BasicReserve(122b)

“F”Feasibility Evaluation

“G”Geological Evaluation

Sub-Economic(2S00)

JORC

Unclassified orExploration Potential

InferredProbable Reserve orIndicated Resource

Proved / ProbableReserve or Measured

Resource

Indicated(002)

Inferred(003)

Predicted(004)

Measured(001)

MarginalEconomic

(2M00)

Resource(334)

Feasibility(010)

Pre-Feasibility

(020)Scoping

(030)

Pre-Feasibility

(020)Scoping

(030)Scoping

(030)Scoping

(030)

Resource(331)

Resource(332)

Resource(333)

IntrinsicallyEconomic (300)

- -

Resource(2S11)

Resource(2S21)

Resource(2S22)

BasicReserve(2M11)

BasicReserve(2M21)

BasicReserve(2M22)

“E”EconomicEvaluation

(100)

Old ChineseClassification A & B C

New Chinese Classification


– III-91 –


4.3.2. The Verification Procedures of the Resource/Reserves of Project Dishuidai

The 311 Brigade has used the ore blocking method to calculate the resource/reserves amount of

every targeted graphite ore block using its average grade, the density and the estimated volume.

The formulas used for the calculation of the quantities of the resources/reserves is described as the

following:

Fig 4-2 The Major Graphite Ore Seams of Project Dishuidai

The accesses to the ore seams have been developed over the years. The main adit is developed at

+627 m level, connected with an air tunnel and an auxiliary adit for accessing to ore blocks. In

depth, there have been six horizontal roadways developed, at levels of ‘‘+ 757 m’’, + ‘‘722 m’’,

‘‘+687 m’’ (or ‘‘+ ‘‘691 m’’), ‘‘+ 652 m’’, ‘‘+ 627 m’’, ‘‘+ 610 m’’.

There were 9 ore blocks targeted by the 311 Brigade geological verification team in 2016 (the latest

updates), provided by the Company. The block divisions were mainly defined according to the

section lines, seam floor contours, project development levels, structural boundaries, ore seam block

inclinations, goaf boundaries, as well as the quasi-mining elevation and project boundary.

The recalculation scope of this resource reserves verification is divided into 9 retained blocks and

renumbered. Among them, the 2# ore seam is estimated by using the geological horizontal

projection method of ore bed floor contour, and its block division is mainly based on the section

line, ore seam floor contour, project mining development level control line, structural line, ore seam

block inclination, goaf boundary, the quasi-mining elevation and project boundary shall be


– III-92 –


delimited. The seam is divided into 3 blocks in this verification, i.e., block numbers of 1, 2 and 3

as detailed in Figure 4-3. The 3# ore seam, its occurrence is steep, and the resource reserves are

estimated by the elevation method. This verification is mainly based on the control line of the

project mining level, the structural line, the dip angle of the seam block, the boundary of the goaf,

the quasi-mining elevation and the project boundary. This verification of the seam is divided into 6

retaining blocks, i.e., block numbers of 4, 6, 7, 8, 9 and 11 as detailed in Figure 4-4.

Fig 4-3 Mineral Resources Estimating for #2 Graphite Ore Seam at Project Dishuidai


– III-93 –


Fig 4-4 Mineral Resources Estimating for 3# Graphite Ore Seam at Project Dishuidai

N

The Industrial Parameters Adopted for the Resource/Reserves Verification by the 311 Brigade

Team. The Geological Exploration Type defined as Category II in the Chinese Geological

Exploration Reference Code.

The Independent Technical Consultants note that the Graphite Deposit in this area is strictly

controlled by the sedimentary strata of the upper Longtan Formation of the upper Permian system.

The original resource reserves report and the annual report of the mine reserves over the years were

based on the shape, scale, thickness variation coefficient and mineralisation continuity of the

graphite ore body in the area. Based the field investigations, engineering verification and

comprehensive analysis, the Independent Technical Consultants agree with the considerations of the

311 Brigade team: that the ore seams in the area are small, and averagely, the ore body shape and

internal structural complexity are medium, the ore body thickness is relatively stable, the ore

quality is stable and the structural destruction of the mineral seams is weak, and after considering

all of the relevant factors, the exploration type of the licence area is determined as the Chinese

Type II Exploration Category according to the Chinese Geological Exploration Reference Code

‘‘Geological Exploration of Glass Siliceous Raw Materials, Facing Stones, Gypsum, Chrysotile

Asbestos, Wollastonite, Talc and Graphite (DZ/t0207-2002)’’. The details of the determined

industrial parameters used for the verification of the resources/reserves of Project Dishuidai are

listed below:

Boundary grade (fixed carbon content): ≥ 55%;

Industrial grade (fixed carbon content): ≥ 65%;


– III-94 –


Minable thickness: ≥ 0.6 m;

Stone inclusion removal thickness: 0.05 m;

There are other parameters adopted for the estimation of the resource/reserves for the graphite

project, which are:

Mining dilution rate: 5%;

Mining waste rate: 5%;

Graphite ore density: 1.70 t/m3.

For the Type II Exploration Category, the basic geological engineering control spacing are: for

‘‘122b’’ Basic Reserves Category, the spacing is 200 m (along strike) x 100 m (along inclination),

for ‘‘333’’ Resource Category, the spacing is the double of the ‘‘122b’’ spacing.

4.4. General Description of the Methodology Employed to Estimate Resources and Reserves

. As detailed of results and the methodologies used for the resources and reserves verifications

of Project Dishuidai in the previous sections, the Independent Technical Consultants

understand that estimation of the resources and reserves of the graphite deposits using ore

blocking methods with detailed ore volume calculations is acceptable under the JORC code

2012.

. The Independent Technical Consultants collected a significant amount of geological and

technical information on the subject properties. This information was provided by the

Company in the form of Geology/Exploration Reports, Project Maps, Feasibility Studies,

Environmental Impact Studies and other miscellaneous information.

. The Independent Technical Consultants and his team familiarised themselves with the

information, especially with the geologic and geographic characteristics of the deposits. All

the subject properties were explored at both regional and local level by specialised exploration

crews, as indicated in the geology reports.

. Various aspects of the deposits such as ore seam dips and structures (folding, faulting, etc.)

were analysed.

. The Independent Technical Consultants and its team carefully considered the regional geologic

setting of the subject deposits, as well as fundamental aspects such as graphite type, seam

thicknesses and continuity, geotechnical aspects (rock mechanics), ore composition, etc.

. The team identified critical data which define its economic viability such as calorific power

and Sulphur and ash contents, among others.


– III-95 –


. A detailed process of data analysis was carried out in order to verify that the database was

reliable.

. Statistical analyses of the quality results were performed.

. The Independent Technical Consultants reviewed the geo-mechanical test results in order to

better understand the roof and floor conditions of each seam.

. The resources under the Chinese classification system were compared with the values obtained

from the independent verification carried out by the Independent Technical Consultants.

. The Resources and Reserves were reported in this Report.

4.5. Statement of the Mineral Resources and Reserves of Project Dishuidai

The Independent Technical Consultants were informed by the Company that the latest resource/

reserves verification report is the one made by the 311 Brigade in 2016 as detailed previously, and

after that time the project has been on the maintaining situation and not materially changes for the

graphite mineral resources. After thoroughly checking and evaluating the geological data, the

previous verification results and the methodologies used, the Independent Technical Consultants

evaluated the quality, grade, densities, shape, and physical characteristics of the ore seams, and the

results are classified with the categories of mineral resources and reserves of JORC Code 2012.

JORC Code defines an ‘‘Ore Reserves’’ is the economically mineable part of a Measured and/or

Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may

occur when the material is mined or extracted and is defined by studies at Pre-Feasibility or

Feasibility level as appropriate that include application of Modifying Factors, which include but are

not restricted to, mining, processing, metallurgical, infrastructure, economic, marketing, legal,

environmental, social and government factors. Such studies demonstrate that, at the time of

reporting, extraction could reasonably be justified. The Independent Technical Consultants justified

the modifying factors one by one and concluded that the relevant modifying factors are all positive.

The details are explained below:

. Project Dishuidai has been operating on a small scale before the Company took over the

property a few years ago. After justifying the project development system and the previous

mining operations, the Independent Technical Consultants consider that the adit-decline

development system and the short-wall caving mining method are technically feasible and

economically cost effective;

. The cut-off grade of 55%, the minimum mining width of 0.6 m, the mining recovery rate of

90% and the dilution rate of 10% were reasonable and applied to the ore reserves estimation;

. The available graphite mineral resources at Project Dishuidai and its exploration potentials

could make the project having an economically reasonable project life;


– III-96 –


. The graphite mineral of Project Dishuidai is a good quality amorphous graphite, which can be

purified to 99.99% of FC grade;

. The Independent Technical Consultants were told that the cost of the purification of graphite

to the grade of 99.99% is RMB15,000/t, which is consistent with the F&S Report;

. The purified graphite product of 99.99% is sold at RMB72k/t under high demand in China

when drafting this report;

. The mining operating costs at Project Dishuidai is estimated at RMB300/t graphite RoM

produced, which is only a small fraction of the high purified graphite product sales, making

the graphite mineral resources valuable, so as to the reserves, and

. Other factors including infrastructure, social, environmental, legal and government issues have

been positive as so far for the project development and operations.

By considering the above modifying factors relevant to the estimation of the ore reserves of Project

Dishuidai and the technical factors of mining recovery and dilution, the Independent Technical

Consultants worked out the ore reserves of Project Dishuidai. The results of the ore reserves are

displayed in Table 4-7 in details.

TABLE 4-7 Statement of Graphite Ore Reserves of Project Dishuidai as of 31 January 2022

Name of the Project

ChineseReservesCategory Volume (m3)

Quantity(kt)

Grade(% of FC)

Density(t/m3)


Project Dishuidai 122 148.2 252 68~77 1.7 Probable

Besides the above mentioned 252kt Graphite Probable Ore Reserves under JORC Category, there

are 95kt Graphite Inferred Ore Resources with grade of 78% under JORC Category in Project

Dishuidai. As valuation for Inferred Ore Resources are not permitted under Chapter 18 of the

Listing Rules, we advise the Company can initiate an intensive exploration program to investigate

and upgrade its current and potential mineral resources from inferred resources to indicated or

measured resources. As such, the value of the graphite projects could be increased.

4.6. Statements of the Resources and Reserves of Project Dengzhanwo and Project

Qingshuijiang

The latest geological investigation and resource/reserves verification report for Project

Qingshuijiang was prepared in December 2010 by Xiangnan Geological Exploration Institute of

Hunan Province (湖南省湘南地質勘察院), while the latest geological investigation and resource/

reserves verification report for Project Dengzhanwo was prepared in November 2014 by Chenzhou

Mine Development Service Centre (郴州市礦產開發綜合服務中心).


– III-97 –


The Independent Technical Consultants have made site visits to the three Projects. The Independent

Technical Consultants are here to provide the latest verification results produced by the local

qualified geological investigation teams. The Independent Technical Consultants consider the

reliability of the verification results were high, backed by that the verification works were carried

out. The results are classified with the categories of mineral resources and ore reserves of JORC

Code 2012.

JORC Code defines an ‘‘Ore Reserves’’ is the economically mineable part of a Measured and/or

Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may

occur when the material is mined or extracted and is defined by studies at Pre-Feasibility or

Feasibility level as appropriate that include application of Modifying Factors, which include but are

not restricted to, mining, processing, metallurgical, infrastructure, economic, marketing, legal,

environmental, social and government factors. Such studies demonstrate that, at the time of

reporting, extraction could reasonably be justified. The Independent Technical Consultants justified

the modifying factors one by one and concluded that the relevant modifying factors are all positive.

The details are explained below:

. The cut-off grade of 55%, the minimum mining width of 0.6 m, mining recovery rate of 90%

and the dilution rate of 10% were reasonable and applied to the ore reserves estimation;

. The graphite minerals of Project Dengzhanwo and Project Qingshuijiang are a good quality

amorphous graphite, which can be purified to 99.99% of FC grade;

. The Independent Technical Consultants were told that the cost of the purification of graphite

to the grade of 99.99% is only RMB15,000/t;

. The purified graphite product of 99.99% is sold at RMB 230kpt under high demand in China

when drafting this Report;

. The mining operating costs at Project Dengzhanwo and Qingshuijiang are estimated at

RMB300/t graphite RoM produced, which is only a small fraction of the high purified graphite

product sales, making the graphite mineral resources valuable, so as to the reserves, and

. Other factors including infrastructure, social, environmental, legal and government issues have

been positive as so far for the project development and operations.

By considering the above modifying factors relevant to the estimation of the ore reserves of Project

Dengzhanwo and Project Qingshuijiang, and the technical factors of mining recovery and dilution,

the Independent Technical Consultants worked out the ore reserves of Project Dengzhanwo and

Project Qingshuijiang. The results of the ore reserves are displayed in Table 4–8 in details.


– III-98 –


TABLE 4-8 Statement of Graphite Ore Reserves of Project Dengzhanwo and Project

Qingshuijiang as of 31 January 2022

Name of the Project


Grade(% of FC)

Density(t/m3)


Project Dengzhanwo 122 19.3 39 77 2.02 Probable

Project Qingshuijiang 122 3.7 7.5 75 2.02 Probable

Besides the abovementioned 39kt and 7.5kt graphite probable ore reserves under the JORC

Category, there are still 92kt & 47kt graphite inferred ore resources with grade of 78% under the

JORC Category in Project Dengzhanwo & Project Qingshuijiang, respectively. As valuation for

Inferred Ore Resources are not permitted under Chapter 18 of the Listing Rules, we advise the

Company can initiate an intensive exploration program to investigate and upgrade its current and

potential mineral resources from inferred resources to indicated or measured resources. As such, the

value of the Projects could be increased.

4.7 Potential Graphite Resources and Reserves of the Project

According to management of the Company, approximately [REDACTED] of the [REDACTED]

from the [REDACTED] is expected to be used for expanding the area of the Projects and graphite

ore reserves, the details of which are as follows:

Name of Project

Additionalroyalties under

the mininglicences

(RMB million)Exploration costs(RMB million)

Issuance ofprofessional reports

(RMB million)Total

(RMB million)

Project Dengzhanwo [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Project Qingshuijiang [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Project Dishuidai [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Total [REDACTED] [REDACTED] [REDACTED] [REDACTED]

The regional geology of all the areas where the Projects are located is well known. The fact that the

continuity of the mineralized bodies beyond the boundaries of the subject properties has been well

established is an encouraging factor to proceed with the expansion of the existing operations. The

existence of other mineable areas that have not been explored yet offers the opportunity to add

Resources and Reserves by obtaining the necessary mining licences. These additional Resources

could be significant, based on the current knowledge of the region’s geology and the extensive

exploration carried out by the Company.


– III-99 –


5. PROJECT DEVELOPMENT AND PLANNING

5.1. Introduction

As stated in the reports of ‘‘Development and Utilisation Plan’’ for the three Projects, the

Independent Technical Consultants found that the Project development modes and the mining

methods used for the three Projects are similar. The typical project development system for the

three Projects is adits (main) combined declines. The topography of the area is very suitable for

using adits to access the underground mineral deposits. The main adits are used for transportation

of ores, equipment and workers, and also used for fresh air inflows fanned into working places.

Normally, an adit services the ore reserves above the level of this adit, and if needed, declines

maybe developed to assist accessing the ore reserves under the level of the adit. In addition, one or

more ventilation adits are also required for forming a ventilation system for the project

development.

The mining methods used for the three Projects are typical Short-Wall Caving Mining Method for

the mining of graphite ore seams as similar to that used for narrow coal seams’ mining in the coal

mining industry in China. For the metal mineral deposits at Project Dengzhanwo and Project

Qingshuijiang, since the veins are mostly narrow-wide and deep-inclined in nature, the suitable

mining method for those veins is Short-Hole Shrinkage method.

The three Projects of the Company have similar production capacity of 30 ktpa and is quantified as

only 100t of ore produced per day. The project development modes and the mining methods for the

three mining Projects of the Company are introduced in more details in the following sections.

5.2. Project Development Plan for Project Dishuidai

5.2.1.Development Levels

As detailed in Fig 5-1 ‘‘Longitudinal Projection of the Development System of Project Dishuidai’’

designed by Chenzhou Tiancheng Survey & Design Co. Ltd. (郴州天成勘察設計院）In 2016, the

project development mode for Project Dishuidai, is a typical adit-decline system. The development

levels are designed by 17~36 elevation differences based on the dip angels of the graphite ore

seams. The designed and the previous developed levels are +757 m, +722 m, +687 m, +676 m,

+652 m, and +610 m. In addition, based on the occurrence elevations of the 2# and 3# ore seams,

there are +792 m and +580 m levels will be developed for 2# and 3# graphite ore seams

respectively.

Both 2# and 3# ore seams are distributed on the east and the west wings of the anticline, there are

some developments designed for both ore seams distributed on both wings as detailed in Fig 5-1.


– III-100 –


Fig 5-1 Longitudinal Projection of Development System of Project Dishuidai

5.2.2. Transportation System

The adit is designed along the strike of the ore seams with slope of 3‰, section size 2.1 m by 2.2

m. The main adit is built at elevation of +687 m, and acted for transportation of workers, ore

minerals and waste rocks, materials and equipment, and fresh air intake. As the Independent

Technical Consultants inspected underground, the adits and other tunnels dug in the surrounding

rocks were stable and no extra supporting engineering works needed except concrete supporting

near the entrance of the adit.

The ore from working faces is generally transported by electric harrow. The horizontal drifts and

transportation roadways use 600 mm gauge rails, and manpowered U-shaped side dump trucks used

for loading ores and wastes. The main decline is generally designed at slope angle is of about 28°

and equipped with lifting winch.


– III-101 –


5.2.3. The Ventilation System

The ventilation system of Project Dishuidai is simple. Using centrally located extraction ventilation

fans to exhaust dirty air while the fresh air coming from the main adit and auxiliary adit located at

the east and the west wings of the as located fresh air is flowing in from the main adit and the

auxiliary adit at both sides of this Project.

The route of the air flow is as follow: fresh air is flowing through the main adit and auxiliary adit,

then to blind decline, horizontal transportation roadways, service raises, and reaching to the

working faces for air washing, and then, the dirty air returning to air connecting roadways, then to

air shafts, ventilation tunnels, and finally flowing to the surface and discharging to the atmosphere.

5.2.4. The Drainage System

A centralised water tank is built at level of + 580 m at the bottom of the blind-decline, the water is

pumped to the roadway, and the water is naturally discharged from the main roadway by taking the

advantage of the 3‰ slope. The water above the main adit +687 m is discharged naturally to the

natural environment flowing through the water discharge drainage ditches dug on the tunnel floor.

5.2.5. Power Supply and Distribution and Communication Facilities

As the Development and Utilisation of Project Dishuidai Report stated, that a 10kv high-voltage

transmission line is used for power supply within the mining area. The surface power supply is

designed to be used separately from the underground power supply transformer, and the neutral

point shall not be grounded during underground power supply. At the same time, one GF-250

(250KW) diesel generator set is configured as the security power supply of this Project. In case of

power grid failure or power failure for other reasons, it can ensure the power consumption for

project ventilation, lifting, drainage and lighting, and ensure the safe production of the project

underground.

In order to ensure the normal production dispatching of the project, an automatic production

dispatching exchange is set up in the project office and connected with the telecommunication

system of the county telecommunication bureau to facilitate the internal and external

communication of this Project.

5.2.6.Mining Method

The mining method designed for Project Dishuidai is a typical Short-Wall Caving Mining Method

for the mining of graphite ore seams as similar to that used for narrow coal seams’ mining in the

coal mining industry in China. Fig 5-2 ‘‘Short-Wall Caving Mining Method for Project Dishuidai’’

shows the details of the mining method designed for Project Dishuidai by Chenzhou Tiancheng

Survey and Design Co. Ltd. in December 2016.

The selection of the mining method was based on not only the geotechnical conditions of the ore

seams and the surrounding rocks, but also on other technical, operational, and economic

requirements and considerations. The surrounding rock of the roof and floor of seam is a lithologic


– III-102 –


complex of sand shale, quartz sandstone, siliceous rock, and breccia in the upper section of Longtan

Formation. The rock stratum is generally subject to thermal metamorphism, with high degree of

consolidation, high compressive strength, and good stability.

Fig 5-2 Short-wall Caving Mining Method for Project Dishuidai

The other factors of selecting a suitable mining method include improving the production capacity,

the production efficiency, the ore recovery rate, and the ore grade, reducing dilution rate and the

production cost on the premise of ensuring the production safety and good operating conditions in

the mining project.

According to the ore body characteristics, occurrence conditions and mining technical conditions,

since the graphite ore seams are regular seams with steeply inclined thicknesses of less than 4 m,

the ore seams and the surrounding rock are relatively stable, and the surface and surrounding rocks

are allowed to collapse, the ore seams can be mined in layers according to the full thickness of the

seams, and the working face can be placed along the strike direction. In addition to retaining the

space required for the next mining block, the roof rock is collapsed in a planned way to fill and

treat the goaf and reduce the ground pressure on the working faces. This method was successfully

applied at this project before it is taking over by the Company.

The Independent Technical Consultants verify the recovery and the dilution factors applied to the

mining operations from previous verification reports, and adopt the averaged recovery and dilution

factors to all of the graphite mining blocks of the three Projects being assessed, these are:

. Mining recovery rate: 90%;

. Dilution rate: 10%.


– III-103 –


Mining blocks are arranged along the strike of the ore seam every 60 m. The block height is

designed for 36 m as the elevation difference between the two adjacent development levels except

where the roof is unstable, it can be shortened appropriately. Between the two mining blocks, a

temporary pillar of 8 to 10 m width is needed, and if the ground pressure is larger and/or the ore

seam is unstable, take the large value.

Ore block cutting is starting from the driving of transportation roadways, followed by digging

upward ore passes every 60 m along the ore seam strike, then the stoping drift at the top of the or

block. The ore passes are connected with the up-stoping drifts and the bottom roadways. Other

raises or accesses are developed to meet the requirements of work safety, air intake, accessing of

people and materials, etc. as detailed in Figure 5-2.

The mining sequence is from top to bottom, from near to far, and backward in an mining block, as

detailed as: (1) mining downward along the dip; (2) on the same level, the mining sequence of each

mining block is backward along the strike; (3) if more than one level of mining arranged (adjacent

levels), the upper level shall be ahead of the down level of one working face length, i.e., 60 m.

As inspected by the Independent Technical Consultants, the major equipment types used or to be

used for the development of Project Dishuidai include decline winches, pressure and exhaust fans,

air drills, water pumps, transformers, tramcars, electric rakes, and charging racks etc.

5.3. Introduction of the Project Development Plan For Project Dengzhanwo

As stated in Table 4-8, the latest verified graphite mineral probable reserves was 39 kt. The

graphite deposits are located within the mining licence area of 0.2347 km2 and elevated between

+1,000 m and +500 m.

There are two graphite seams as major mining targets according to available resource report and

prospecting data, which are associated with lead and zinc mineralisation as well as silver deposits

in the project area. Generally, the interval between two graphite layers is 25 m and both are

minable over most of the area. No. 1 graphite bed is 0.3–3.1 m thick, with an average 1.26 m. The

thickness of the No. 2 graphite seam is 0.2–1.5 m, with an average of 0.96 m. Faults appearing in

the north of the project area may impact the distribution of the graphite mineralisation, especially

for the No. 2 graphite orebody, where its thickness becomes relatively stable towards the south and

east of the project area.

The mining area is located at the uplifted north end of the Meitian-Matian Syncline Complex. The

syncline is asymmetric with the east wing dipping at an angle 28°–32° and the west wing at an

angle 35°–40°, which control the occurrences of the ore seams.

The Independent Technical Consultants found that the styles of the graphite minerals formations

and their occurrences, as well as the geochemical conditions are all similar to that of Project

Dishuidai. The graphite ore seams are narrow with dip angels between 30° and 40°, and the verified

ore seams all located above +820 m and reached to the highest of +940 m.


– III-104 –


The latest Mineral Resource Development Plan for Project Dengzhanwo was prepared by Chenzhou

City Coal Mine Design Institute (郴州市煤礦設計院) in November 2010. The report stated that

there were five adits developed within the licence before the Company took over the project. The

Coal Design Institute used two of the five old adits as the main adit and the returning air adit to be

developed. The main adit is located at + 812 m for transportation of workers, mining equipment

and materials, as well as for fresh air intake. The adit can service for mining of the graphite ore

reserves found within the project. The adit for returning air is designed at +894 m to be used for

ventilation of the project.

The mining method is the same as that designed for Project Dishuidai, i.e., the Shore-Wall Caving

Mining Method except the dimensions of the mining blocks, which are dependent on the real

occurrence conditions of the ore seams.

The resources of lead, zinc, and silver minerals of 4 kt are so small, which maybe recovered along

with the extraction of graphite ores and are not considered for technical assessment in this Report at

this time.

Considering the similar nature and styles of the project development and planning between Project

Dengzhanwo and Project Dishuidai (as detailed in section 5.2), the Independent Technical

Consultants are not intending to address the similar details regarding to the technical aspects for the

development plan of Project Dengzhanwo.

5.4. Introduction of the Project Development Plan For Project Qingshuijiang

5.4.1. Project Development

In August 2011, Chenzhou Liansheng Survey and Design Co. Ltd. (郴州聯盛勘察設計有限公司）

produced a report of Resource Development and Utilisation for Project Qingshuijiang. The

development plan was designed for the extraction of 120 kt of lead-zinc-tin ore minerals and 57 kt

of graphite ore mineral.

The current mining licence of Project Qingshuijiang was firstly issued in 2010 by consolidating

three neighbouring Projects named as Qingshuijiang No. 1 Project (licence area of 0.6705 km2,

becoming the first mining zone of the current project), Qingshuijiang No. 2 Project (licence area of

0.3428 km2, becoming the second mining zone of the current project) and Fengyuan Graphite

Project (licence area of 0.2712 km2, becoming the third mining zone of the current project). The

consolidated mining licence has an area of 1.3302 km2 and permitted elevations between +1,500 m

and +830 m as shown in Fig 5-3.


– III-105 –


Fig 5-3 Geological Map of Project Qingshuijiang Showing Licence Boundary and the Three

Mining Areas

N

There are five mineral ore bodies found within the current mining licence area, of which four of

them are lead-zinc-tin polymetallic veins and one is graphite ore seam.

Orebody No. 1, a lead-zinc-tin ore body found in the second mining area of the project, is

controlled by the F5 fault. The lithology of the roof and floor of the ore body is siltstone,

hornfelized mudstone, and porphyritic granite.


– III-106 –


No. 2 ore body, a lead-zinc-tin ore body, found in the first and second mining areas of the project,

is controlled by the F4 fault. It occurs in the form of veins, occasionally as branches, and dips to

125–138°, with a dip angle of 53–72°. The lithology of the roof and floor of the ore body is

siltstone and hornfelized mudstone.

No. 3 ore body, a lead-zinc-tin ore body, found in the first and second mining areas, is controlled

by the F6 fault. The ore body appears as a vein, branch, pinch-out and reappearing, with a dip

direction 125–138° and dip angle 55–78°. Outcrops of the ore body can be located in old mining

pits. It extends 240 m long along strike, and 110 m down dip with an averaged thickness 1.73 m.

The ore body dips to 125°, at an angle of 55°. It contains tin at a grade of 0.224–1.742 percent,

with an average of 0.887 percent, lead 0.98–4.06 percent, with an average 2.08 percent, zinc 1.27–

3.73 percent, with an average 2.22 percent. The lithology of the roof and floor of the ore body is

siltstone and hornfelized mudstone.

No. 4 ore body, a lead-zinc-tin ore body, is located in the second mining area of the project. It dips

to 115–170°, with a dip angle 18–23° and an average 20°. Controlled by the interlayer fissures of

the Longtan Formation in the Upper Permian, the ore body occurs in a layer-like shape with a strik

length of 180 m and 85 m down-dip direction. It contains tin 0.258–3.175 percent, average of 1.391

percent; lead 0.03–1.92 percent, average 0.68 percent, zinc 0.02–2.89 percent, average 0.88 percent.

Graphite No. 1 ore seam is found in the third mining area. The ore seam dips to 114°–215° at a dip

angle 22°–60° on the east wing of the anticline and the west wing of the syncline, and dip to 280°–

315° at a dip angle 26°–74° on the west wing of the anticline and the east wing of the syncline. It

extends for more than 200 m along strike and more than 100 m down dip with a thickness 0.6–2.0

m. The roof and floor of the ore body are composed of hornfelized silty mudstones and strongly

metamorphic quartz sandstones. The No. 2 ore body occurs in layers and distributes in the second

mining area. The ore body dips to 215°, at an angle of 20°. It is 0.1–1.0 m thick, with an average

0.55 m.

As illustrated in Fig 5-4, the project development system of Project Qingshuijiang is adits combined

with blind decline designed by Chenzhou Liansheng Survey and Design Co. Ltd. The development

is similar to the system of Project Dishuidai.


– III-107 –


Fig 5-4 B-B Cross-Section Lined in Fig 5-3

The details of the development system of Project Qingshuijiang is described as:

. The main adit is set up at +1,165 m;

. An auxiliary adit is set up at +1,206 m;

. Returning air tunnel for No. 3 ore body is set up at +1,315 m;

. Air tunnel for graphite mining zone is set at +1,495 m;

. Above +1,165 m level, adits only system; while under +1,165 m level, adits combined

declines;

. The major levels to be developed for the lead-zinc ore veins are +1,206 m, +1,245 m, +1,280

m, 1,320 m and +1,350 m; and

. The levels to be developed for the graphite ore seams are +1,460 m, +1,480 m and +1,500 m.

5.4.2.Mining Method

The lead-zinc-tin deposits in the First and the Second Mining Zone of Project Qingshuijiang are

suitable for using Short-Hole Shrinkage Stoping mining method where the mineral veins having

steep dip angels (the most cases of the metallic mineral veins). For the graphite ore seams in the

Third Mining Zone, Short-Wall Caving mining method will be used, which is used at Project

Dishuidai as introduced in section 5.2.6 of this Report. The followings briefly introduce the Short-

Hole Shrinkage Stoping mining method as illustrated in Fig 5-5.


– III-108 –


Short-hole shrinkage stoping is a labour intensive, selective mining method that enables close

control of ore loss and dilution. This mining method is suited to the style a narrow, moderately

dipping orientation ore body. The vein ranges in dip from 45° to 66°, with an overall continuous

thickness and grade over the length of the vein group. Generally, the recovery rate can be higher as

95%, and the dilution rate can be controlled as low as 3% depending on the values and the real

mining conditions where the mineral deposits extracted.

Fig 5-5 A Typical Short-hole Shrinkage Mining Method

Source: H. Hamrin, Guide to Underground Mining Methods and Applications (Stockholm: Atlas Copco, 1980)

The major parameters of a standard production block of this method are summarised:

. The production block is arranged along the strike, and its size is 50 m in length by vein

thickness by interval between the up and down levels;

. The top pillar is 3 m thick, and the bottom pillar is 4 m thick;

. The spacing between two funnels is 6 m;

. Raises are set on both side of the block for vertical access and ventilation.


– III-109 –


The mining works for short-hole shrinkage stoping:

. Mining work includes rock drilling, blasting, ventilation, local ore drawing and safety

treatment;

. After forming a free-space tunnel on the bottom, the mining is carried out from bottom to top

in layers of about 2 to 2.5 m working level;

. Ammonium oil explosive is used, but non-electric detonator is used for initiation;

. After blasting and ventilation works completed, each time of ore drawing only one third of the

ores are discharged through the ore passes, which ensures the working space at about 2 m in

height keeping convenient for next working circle.

5.5. Capital and Operating Costs

5.5.1. The First Stage Capital Costs for Developing of the Three Projects

The Independent Technical Consultants noted that the three mining Projects have been in

maintenance status. Project Dengzhanwo and Project Qingshuijiang were out of production for

some years. Project Dishuidai had trial production. To bring the Projects to a normal production

capacity, investment in both project developments and explorations are needed imminently.

The Independent Technical Consultants were provided by the Company the details of the capital

costs for the first stage development of the three Projects, namely Project Dengzhanwo, Project

Qingshuijiang and Project Dishuidai. The total budget of the capital requirement for the three

Projects is approximately [REDACTED], in which Project Dengzhanwo takes approximately

[REDACTED], Project Qingshuijiang takes approximately [REDACTED] and Project Dishuidai

takes approximately [REDACTED]. Table 5-1 shows the details of the capital requirements for the

three Projects in the first stage of project development.


– III-110 –


TABLE 5-1 Breakdown of Capital Costs for Project Development of the Three Mining Projects— the First Stage Project Development

Project Sub-stage Particulars

Estimated costin RMB

(in million) Expected timeline

Project Dengzhanwo

Access RoadsBuilding access roads

to the site [REDACTED] 2023

Power Supply FacilitiesSetting up powerfacilities in the site

[REDACTED] 2023

Technical Reports

Report updates:resource/reservesverification report;development andutilisation report;

environmental impactassessment

[REDACTED] 2023

Renewal of Mininglicence

Paying the resourceroyalties and relevant

fees[REDACTED] 2023

Technicaltransformation

Upgrading the projectdevelopment system

and rebuild[REDACTED] 2023

Subtotal [REDACTED]


Green ProjectDevelopment

Upgrading roads andproject facilities, eco-

development andupgrading wastecontrol measures

[REDACTED] 2022–2023

Technical Reports

Report updates:resource/reservesverification report;development andutilisation report;

environmental impactassessment

[REDACTED] 2022–2023



fees[REDACTED] 2022



and rebuild[REDACTED] 2022–2023

Subtotal [REDACTED]


– III-111 –


Project Sub-stage Particulars

Estimated costin RMB

(in million) Expected timeline

Project Dishuidai

Green ProjectDevelopment

Upgrading roads andproject facilities, eco-

development andupgrading wastecontrol measures

[REDACTED] 2022



fees[REDACTED] 2023



and rebuild[REDACTED] 2023

Subtotal [REDACTED]

Total Capital Cost [REDACTED]

Source: information provided by the Company

5.5.2.Operating Costs of the Mining Operations of the Three Projects

The Independent Technical Consultants have estimated the operating costs of Project Dishuidai

based on the information provided by the Company and the information obtained from the site

visiting. Adjusting by the current market factors, the Independent Technical Consultants estimate

the operating costs of extracting of the graphite ore minerals in the three Projects, as detailed in the

following Table 5-2. There may be some differences in operating costs between the three Projects

having operational conditions. The Independent Technical Consultants estimate the direct operating

cost is around 300 RMB/t at current economic and market situations.


– III-112 –


TABLE 5-2 Breakdown of Estimated Operating Costs for Extracting of the Graphite Deposits

from the three Projects

Cost Breakdown Unit Cost Cost

Labour Cost RMB/t 125

Supporting Materials RMB/t 50

Explosive Related Materials RMB/t 30

Power Charges RMB/t 15

Fuels RMB/t 5

Production Tools and Accessories RMB/t 20

Admin Fees RMB/t 35

Other Fees RMB/t 20

Total Operating Cost RMB/t 300

TABLE 5-3 Mining Schedule of the Graphite Deposits from the Three Projects (prior to

expanding the area and depth of the Projects)

Project No. Project Name

Mining Schedule (Tonnes/Year)

2022 2023 2024

1 Project Dengzhanwo — 5,100 30,000

2 Project Qingshuijiang — 6,750 —

3 Project Dishuidai 5,000 30,000 30,000

Once the Company can obtain the necessary licences and permits in a timely manner, the mining

schedule and annual planned production capacity for the three Projects should be adequate and

reasonable.


– III-113 –


6. MINERAL PROCESSING AND PURIFICATION TECHNOLOGIES FOR

AMORPHOUS GRAPHITE MINERALS

The Independent Technical Consultants consider that the core assets of the Company are the

mineral resources and/or ore reserves of the graphite deposits identified within the three mining

licence areas. This chapter is focusing only on the aspects of producing ultra high purity amorphous

graphite product using graphite minerals extracted from the three Projects.

6.1. Introduction of the Natural Graphite Minerals in China

China is rich in graphite resources. China’s graphite resources account for more than 60% of the

world’s graphite resources. It is one of the few countries in the world with crystalline graphite and

amorphous graphite.

According to the statistics (2012) of the Ministry of Land and Resources, the reserves of crystalline

graphite in China are 30.85 million tonnes, the basic reserves are 52.8 million tonnes, the resources

are 170 million tonnes, and the reserves of graphite deposits are large. The graphite in most

deposits is mainly medium scale (+ 200 mesh), and a few deposits are mainly small scale (0.074 ~

0.01 mm). The graphite deposit conditions are good in China.

Crystalline graphite is easy to separate, with high mineral recovery and easy to process and

concentrate. China’s crystalline graphite is dominated by large and medium-sized deposits, which

are mainly concentrated in several provinces. Among them, Heilongjiang Province has graphite ore

reserves of 22 million tonnes, Shandong Province has graphite ore reserves of 12 million tonnes,

Inner Mongolia has graphite ore reserves of 4 million tonnes. Currently, China has three large

production bases namely, Baiyunshan Graphite Deposit in Luobei County, Heilongjiang Province;

Pingdu graphite mining area, Shandong Province; and Xinghe graphite mining area in Inner

Mongolia.

Amorphous graphite reserves are 13.58 million tonnes and basic reserves are 23.71 million tonnes.

Cryptocrystalline graphite is mainly small and medium-sized, which is mainly distributed in Hunan,

Guangdong, Jilin, and other provinces. The mining areas with large reserves include Lutang mining

area in Chenzhou, Hunan province, and Panshi mining area in Jilin province. The cumulative

proven resource/reserves of graphite minerals in Lutang mining area are 31.6482 million tonnes,

and the cumulative mining productions of graphite ore are 21.7524 million tonnes. Chenzhou is

accounting for 75% of the China’s cryptocrystalline graphite reserves. Fig 6-1 is a simple

illustration for the distribution of graphite mineralisation zones with types of graphite minerals in

China.


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Fig 6-1 Graphite Minerals Deposits and Mineralization Zones in China

In Fig 6-1, Gph 21 is the zone that Project Dengzhanwo, Project Qingshuijiang and Project

Dishuidai are located at.

6.2. Classification of Nature Graphite and Its Performance in Mineral Processing

Natural graphite is divided into two categories according to graphite crystal morphology and

process characteristics:

1. Crystalline graphite

There are two types of crystalline graphite, one is dense crystalline graphite and the other is scale-

like graphite.

The dense crystalline graphite, also known as massive graphite. Such graphite crystals are obvious

and visible to the naked eye. The particle diameter is greater than 0.1 mm, and the specific surface

area is concentrated in the range of 0.1–1 m2/g, showing a dense block structure. The grade of this

kind of graphite is very high. Generally, the fixed carbon reaches 60–65%, sometimes 80–98%, but

its plasticity and greasiness are not as good as flake graphite.

The scale-like graphite, the crystal is flake, which is metamorphic under high temperature and high

pressure. It can be divided into large scale and small scale. The grade of such graphite is not high,

generally between 2–3% or 10–25%. It is one of the best floatable ores in nature. High grade


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graphite concentrate can be obtained through multi grinding and multi separation. The floatability,

lubricity and plasticity of this kind of graphite are superior to other types of graphite, so its

industrial value is the greatest.

Crystalline graphite flotation

Flake graphite has good natural of floatability and low density, so coarse-grained flake graphite is

easy to float up. Kerosene and diesel oil can be used as flotation collector, and terpineol oil is

commonly used as foaming agent. Most flake graphite ores contain gangue minerals such as calcite

and pyrite, and inhibitors such as lime and water glass need to be added. For carbonaceous shale,

starch and lignosulfonic acid can be added as inhibitors. Rare metals such as vanadium contained in

graphite ore should be recovered to improve economic benefits.

2. Amorphous graphite is called microcrystalline graphite or earthy graphite. The crystal

diameter of this kind of graphite is generally less than 1 micron, and the specific surface area

ranges from 1 to 5 m2/g. It is an aggregate of microcrystalline graphite. The crystal form can

be seen only under the microscope. This kind of graphite is characterised by earthy surface,

lack of luster and slightly worse lubricity than flake graphite. The grade is high, and the

general fixed carbon content is 60–85%. A few can reach more than 90%. Traditionally, it is

generally used in the foundry industry. However, new technologies make the minerals having

much higher industrial values. Amorphous graphite is mainly producing in Chenzhou region,

Hunan province. With the improvement of graphite purification technology, the application of

earthy graphite will be more and more widely.

Amorphous graphite flotation

Amorphous graphite has poor natural floatability and high raw ore grade, up to more than 70%–

80%. However, graphite particles are closely embedded with clay and difficult to separate, so it is a

difficult ore. In industrial production, the grade of Amorphous Graphite concentrate can be

increased to more than 80% by grinding and flotation, but it is difficult to reach 90%. Even if the

regrinding times are increased, the concentrate grade is not improved much. Amorphous graphite

flotation can only play a role in approximate enrichment, so concentrate and tailings can be sold as

products of different grades. Flotation characteristics of Amorphous Graphite include large amount

of flotation collector, slow flotation speed, low concentrate recovery and high tailings grade.

6.3. The Properties of Graphite and the Use of Graphite

Graphite has the following special properties:

. High temperature resistance: melting point 3,850°C and boiling point 4,250°C. even if it is

burned by ultra-high temperature arc, the weight loss is very small, and the coefficient of

thermal expansion is very small. The graphite strength increases with the increase of

temperature. At 2,000°C, the strength of graphite is doubled.


– III-116 –


. The conductivity: thermal conductivity and conductivity of graphite are 100 times higher than

that of general non-metallic minerals. At very high temperatures, graphite becomes an

insulator.

. Lubricity: the lubricity of graphite depends on the size of graphite scale. The larger the scale,

the smaller the friction coefficient, and the better the lubrication performance.

. Chemical stability: graphite has good chemical stability at room temperature and can resist

acid, alkali and organic solvent corrosion.

. Plasticity: good toughness of graphite, which can be developed into a very thin explosive

sheet.

. Thermal shock resistance: it can withstand the drastic change of temperature without damage

when used at room temperature.

. High transparency: graphene, a single-layer flake crystal composed of carbon atoms, is

electrically conductive, thermally conductive, transparent and unparalleled.

Having the valuable natures of the above, the graphite products can be used for:

. Refractory;

. Conductive material;

. Wear resistant lubricating material (200–2,000°C); At 200–2,000°C, replace lubricating oil.

. Good chemical stability and many special reaction tanks;

. Casting, sand turning, die pressing and high-temperature metallurgical materials;

. In the atomic energy industry and national defence industry, graphite is a good neutron

reducer for atomic reactors, and uranium-graphite reactor is a kind of atomic reactor widely

used at present. However, the purity of graphite in the application of atomic reactor is

particularly high, and the impurity content does not exceed dozens of ppm.

. Anti-boiler scaling, anti-corrosion, and anti-rust coating.

. Pencil lead, pigment, polishing agent;

. Compared with copper electrode, graphite electrode has many advantages.

. Graphene, the thinnest and hardest nano carbon material, is expected to trigger a revolution in

new materials and modern electronics.

. There are no harmful elements in our graphite projects which would substantially affect the

processing or purification of graphite.


– III-117 –


According to the purities of the graphite products, they are classified into Ultra High Purity

graphite, High Purity Graphite, High Carbon Graphite, Medium Carbon Graphite and Low Carbon

Graphite. Ultra High Purity Graphite (99.99% FC) is the future new material having broad

application prospects, it will be used for making graphene, and in high tech industries such as

nuclear energy generating, photovoltaic industry, military industry, aviation and aerospace

industries etc.. High Purity Graphite (99.9% FC) is mainly used as flexible graphite sealing

material to replace platinum crucible due to chemical reagent melting and lubricant base material.

High Carbon Graphite (94–99.9% FC) is mainly used for refractories, lubricants, base materials,

electric brushes, etc.. Medium Carbon Graphite (80–94% FC) is used for making crucibles,

refractories and casting materials. Battery raw materials, etc.. Low Carbon Graphite is mainly used

as casting coating.

6.4. Introduction of the Five Beneficiation and Purification Methods of Amorphous Graphite

(Source: China Powder Technology Network (2017-04-27 · official Sohu number of China Powder

Technology Network)

Amorphous graphite is a kind of crystal with a diameter less than 1 μm, with a specific surface area

between 1–5 m2/g. The carbon content of raw ore of amorphous graphite is generally higher than

that of crystalline graphite. Natural pure graphite is very rare, often associated with andalusite,

mica, kaolin, etc. The carbon content of most amorphous graphite is 60%–85%, the ash content is

15%–22%, the volatile content is 1%–2%, and the moisture content is 2%–7%. The grade of a few

raw ores can reach more than 90%.

Beneficiation is an important guarantee in the early stage of mineral deep processing. According to

the physical and chemical changes in the impurity removal process, the beneficiation and

purification methods of amorphous graphite can be divided into: 1) wet purification method,

including flotation purification method, acid-base purification method and hydrofluoric acid

purification method; and 2) fire purification method, including chlorination purification method and

high temperature impurity removal method.

6.4.1.Flotation Purification of Amorphous Graphite

Flotation method is one of the most commonly used beneficiation methods. In Shaanxi, Sichuan,

Jilin, and other provinces of China, most of the raw amorphous graphite ores belong to low-carbon

graphite. Flotation method is generally used to purify graphite.

The size of graphite flake is one of the criteria to judge the quality of graphite. In order to protect

its flakes, multi-stage grinding, multiple beneficiations, regrinding and re beneficiation of coarse

concentrate and other processes are mostly used in the beneficiation method, in order to select large

flake graphite in time. Generally, normal flotation is adopted first, and then reverse flotation is

carried out for selected products.


– III-118 –


Amorphous graphite flotation collector mostly uses coal tar; foaming agent is mostly 2# oil and 4#

oil; water glass and sodium fluosilicate are generally used as inhibitors. With the wide application

of flotation column in beneficiation, flotation column has also been popularised and applied to the

separation of graphite.

As a common wet purification method, flotation has the greatest advantages of low energy

consumption, less reagent consumption and low cost. However, the purity of graphite purified by

flotation method is limited, and the concentrate grade is generally 85%–90%, mostly medium

carbon graphite. Therefore, the flotation method is mainly used for the preliminary purification of

amorphous graphite. To obtain high carbon graphite, the product needs to be reprocessed by

chemical or fire purification methods.

6.4.2. Purification of Amorphous Graphite by Alkali Acid Method

The principle of alkali acid purification of amorphous graphite is: using the acid-base resistance of

graphite to mix alkali and graphite evenly at certain ratio for calcination. The alkali in the molten

state reacts with some impurities such as silicate, aluminosilicate, and quartz in graphite to form

soluble silicate or acid soluble silicate, which is then cleaned and desilicated. The other part of the

impurities that do not react with alkali are metal oxides, which remain in graphite after alkali

melting. Then, the desilication product is leached by acid method to convert the metal oxide into

soluble salt, and then the graphite is purified through dehydration, washing and other processes.

In order to improve the purity of Amorphous Graphite products, activation pretreatment of graphite

raw ore is generally selected before alkali leaching and acid leaching, such as roasting and

activation of raw ore. The activity of the reaction between impurities and alkali and acid in the

roasted graphite is enhanced, which speeds up the removal efficiency of impurities. Compared with

the raw ore samples without pretreatment, the purification effect is remarkable.

In China, alkali acid method is widely used in Inner Mongolia, Shandong, and other places. The

advantages of this method are less one-time investment, strong process adaptability and general

equipment. Compared with flotation method, the product obtained by this method has higher purity,

generally 99% high carbon graphite, but the purity cannot meet the requirements of 99.9%. Its

disadvantage is that it must be roasted at high temperature, resulting in large energy consumption,

low purification efficiency, serious equipment loss and more loss of valuable ore logistics.

6.4.3. Purification of Amorphous Graphite by Hydrofluoric Acid Method

Since silicates can generally be dissolved by hydrofluoric acid, and graphite has good acid

resistance and corrosion resistance, hydrofluoric acid is generally used to purify graphite. The

reaction principle is as follows: the graphite is mixed with liquid hydrofluoric acid, the impurities

in the graphite react with hydrofluoric acid to form water-soluble compounds and volatiles, and

then these impurities are removed by water washing, dehydration and drying, so as to achieve the

purpose of purification. In order to avoid precipitation of impurities containing calcium, magnesium

and iron during the reaction, a small amount of fluorosilicic acid, dilute hydrogen chloride, Nitric

acid or Sulfuric acid must be added to hydrofluoric acid to eliminate the inevitable ion nuisance of


– III-119 –


calcium, magnesium and iron. In terms of action mechanism, this method is consistent with the

alkali acid method: first eliminate the impurities such as silica and aluminum oxide that are difficult

to dissolve in acid, then eliminate other impurities with acid solution, and finally obtain amorphous

graphite with high carbon content after washing.

As early as the 20th century, hydrofluoric acid method has realised industrial production. Compared

with China, other countries prefer hydrofluoric acid method to purify graphite. Foreign scholars

have studied that the carbon content of graphite powder with 93% carbon content can be purified to

99.9% by reacting acid ammonia fluoride or ammonia hydrogen fluoride with graphite.

The advantages of hydrofluoric acid purification are high purification efficiency, high product

purity, low energy consumption, little impact on product performance, etc. However, Hafnium is

volatile and toxic, so strict safety protection and wastewater treatment system must be provided in

the production process. It has the disadvantages of complex process, high cost, strong corrosivity

and large environmental pollution, so it is difficult to carry out large-scale production.

6.4.4. Purification of Amorphous Graphite by Chlorination Roasting

Chlorination roasting method is a common fire purification method. Its principle is that impurities

such as silicate, aluminosilicate and quartz in graphite can be decomposed into oxides such as

silica, alumina, iron oxide and calcium oxide under high temperature heating conditions. Adding a

certain amount of reducing agent to graphite powder and roasting under high temperature and

specific atmosphere, oxide impurities react with chlorine to convert oxides into chlorides. Because

the melting boiling point of chlorides is relatively low, these chlorides are vaporised and escaped

by high-temperature roasting, so as to achieve the purpose of impurity removal and purification.

Chlorination roasting method has the advantages of energy saving, high purification efficiency and

high recovery. However, the process conditions are unstable, the purification cost is high, and the

tail gas is difficult to treat, resulting in serious air pollution. In addition, chlorine has a series of

disadvantages, such as certain toxicity, serious corrosion to equipment and poor controllability,

which limits the popularisation and application of this method.

At present, chlorination roasting method is still in the stage of renovation and development.

Compared with alkali acid method, hydrofluoric acid method and high temperature method, this

method has better technical and economic advantages. If we can make full use of the mature

application technology and wear-resistant and corrosion-resistant equipment in metallurgical and

chemical industries, this method will be industrialised and popularised in the industrialisation of

graphite deep processing and purification in the future.

6.4.5.High Temperature Purification of Amorphous Graphite

In nature, the melting and boiling point of graphite is second only to diamond, and its melting point

is 3,850°C, far higher than that of silicate. The principle of high-temperature purification method is

using the high-temperature resistance of graphite and the difference in melting boiling point

between graphite and impurities. Graphite is added to the graphitized graphite crucible. Under the


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specific conditions of introducing inert gas and protective gas, it is heated to 2,700°C by a specific

purification furnace. After reaction occurs for a period of time, impurities can be gasified and

overflow from graphite to achieve the purpose of impurity removal.

The product purified by high temperature method belongs to ultra high purity graphite with carbon

content of more than 99.99%, but its method also requires high purity of raw materials, and the

carbon content must be more than 99%. The disadvantage is that the high-temperature method is

limited to the purification of high purity raw materials and requires a specific high-temperature

furnace, resulting in disadvantages such as high investment, high production cost and strict

requirements for operation technology. In addition, the huge production cost caused by high-

temperature power consumption also makes the application field of this method extremely limited.

Only when there are strict requirements on the carbon content of graphite products, the high-

temperature method can be used for small batch production of graphite.

6.4.6. Prospects from the Graphite Industry

Graphite is an important non-metallic strategic resource. How to purify, process and utilise it

effectively deserves the attention in the graphite industry field. Various purification methods of

amorphous graphite have their own advantages and disadvantages, which can be comprehensively

improved by Wet — Fire combined or Beneficiation — Metallurgy combined processing.

Currently, there are some issues need to be considered for developing new technologies and making

renovations to improve the processes for purification of Amorphous Graphite, these include:

. Improve purification efficiency: improve the reagent system, improve and reduce the

processing procedures as much as possible, and select practical and efficient equipment to

improve the impurity removal efficiency.

. Avoid secondary environmental pollution: try to choose non-toxic, pollution-free, low price

and wide sourced chemical agents or study new green, environment-friendly and efficient

chemical agents

. Energy saving and consumption reduction: considering the processing cost, catalysts can be

added, raw ore pretreatment, continuous operation, wastewater recycling, etc. to minimise

energy consumption and comprehensive resource recovery, so as to achieve environmental

protection and sustainable development.

6.5. Processing Plant to be built with High Temperature Purification Technologies Used For

Purifying Amorphous Graphite Materials

The Independent Technical Consultants were invited to visit a graphite smelter located in Miluo

City of Hunan Province, which is similar to the one that the Company plans to use to produce ultra

high purity graphite.


– III-121 –


The Independent Technical Consultants were told that the Company will construct a processing

plant with high temperature purification technologies in 2023 and expect that the full commercial

production will be commenced in 2025. It is forecasted that the plant will be able to process

approximately 100,000 tonnes of graphite ores to the grade of 99.99% fixed carbon.

6.5.1. The Principles of the New Technologies

As stated earlier, the high temperature purifying furnace requires high purity of graphite raw

materials as of 99% or more of FC. However, using the available technologies and process methods

to achieve 99% FC graphite product has already been a high-tech process with high production

costs recognised in this graphite industry. The normal thinking of this fact has driven away the

investors from this field. The new technology innovation, however, can accept lower grade raw

materials putting into the purifying furnace. The solution is to directly purify the so called ‘‘hard

processed’’ amorphous graphite raw materials not to 99% but to only about 93% by just roasting.

This process is called ‘‘pretreatment roasting’’.

The Independent Technical Consultants were told the roasting process is to remove the moisture

and volatiles. As previously tested (results displaced in Table 4-2 and Table 4-5 of this Report), the

moisture (H2O) and volatiles materials account for about 4 to 5.5% of the tested samples in weight.

The grade of the graphite ore material from Project Dishuidai is about 78% FC after simple hand

selection. So that, after the roasting, the 93% FC grade of primary graphite product is produced and

ready for the next furnace purification process. The innovation improves the techniques of the

normal high temperature vacuum graphite purifying furnace and dramatically reduces the power

costs and technical difficulties to get ultra-high grade (>= 99.99%) Fig 6-3 shows the appearance of

a high temperature vacuum graphite purification furnace installed at graphite smelter.


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Fig 6-3 The High Temperature Vacuum Graphite Purifying Furnace

Source: Photo taken by Mr. Zhao of the Independent Technical Consultants

As stated earlier, the principle of the purifying process is to take the advantage of the high melting

point of graphite, which is one of the highest melting and boiling points in nature, and much higher

than that of impurity silicate. Using the difference of their melting and boiling points, put the

pretreated graphite materials into the graphitized crucible, and heat it to 1,500°C, 2,500–2,800°C

and 2,800–3,200°C in three sections of a furnace system with specific instruments and equipment

under a certain atmosphere, such as adding certain amount of Hafnium and Hydrochloric acid,

which makes the impurities reacting, gasify and escape out of the graphite materials step by step, so

as to achieve the goal of purification.


– III-123 –


The process and the equipment used can be described as Fig 6-4 below:

Fig 6-4 Diagram of The Graphite Purification System

Fig 6-4 shows the utility model of a continuous vertical medium frequency high temperature and

ultra high purity graphite production equipment system, which comprises:

. a feeding device (1);

. a feeding bin (2);

. an infrared temperature measuring device (3);

. an intermediate frequency induction heating device (4);

. a medium frequency high-temperature heating section (5);

. a discharge port (6);

. a cooling spiral discharge device (7);

. a water-cooling device (8);


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. a low-temperature heating section (9);

. a medium frequency medium temperature heating section (10);

. an impurity exhaust port (11);

. a cyclone condensation collection device (12);

. a gas supply device (13).

It is characterised in that the furnace comprises a feeding bin (2), a low-temperature heating section

(9), a medium frequency medium temperature heating section (10), a medium frequency high-

temperature heating section (5) and a discharge port (6).

On the low-temperature heating section (9), the intermediate frequency medium temperature heating

section (10) and the intermediate frequency high temperature heating section (5) are respectively

installed with an impurity exhaust port (11) connected with the cyclone condensation collection

device (12).

The intermediate frequency medium temperature heating section (10) and the intermediate

frequency high temperature heating section (5) are attached with an intermediate frequency

induction heating device (4) and an infrared temperature measuring device (3).

The feed bin (2) is connected with the feed device (1). The discharge port (6) is connected with the

cooling spiral discharge device (7), and the gas supply device (13) is connected with the furnace

through a pipe.

6.6. The Operating Costs of the Purification to 99.99% FC

Information from the F&S Report indicates that the market price of the ultra high purity graphite is

about RMB72,200/t in 2021. The Independent Technical Consultants estimated the mining costs of

RMB300/t amorphous graphite ore produced, the transportation cost of RMB150/t, and the VAT &

other tax of RMB10,010/t. The cost advantage will keep the Company at a good competition

position in the market. The Company’s business model of securing graphite raw materials by

owning graphite mining Projects is clearly an advanced strategy.


– III-125 –


7. ECONOMIC EVALUATION

The following table summarises the mining schedule and annual planned production capacity for 3

graphite Projects for economic evaluation use.

TABLE 7-1 Mining Schedule of the Graphite Deposits from the Three Projects (prior to

expanding the area and depth of the Projects)

Project No. Project Name

Project Schedule (Tonnes/Year)

2022 2023 2024

1 Project Dengzhanwo — 5,100 30,000

2 Project Qingshuijiang — 6,750 —

3 Project Dishuidai 5,000 30,000 30,000

The following table (which is enclosed as an attachment to this Report), summarises the unit price,

production costs (direct and indirect) and the applicable taxes (described below) for each operation

and each commodity:

TABLE 7-2 Project Costs Estimation Summary as of 31 January 2022

ProjectNo. Name of Mining Company Mineral Product Type

Unit SellingPrice

(RMB/T)VAT & OtherTax (RMB/T)

OperatingCost (RMB/T)

1 Chenzhou Beihu District Dengzhanwo

Graphite Mining Co., Ltd

Graphite Ore (77%) 1,705 244 300

Graphite Ultra High Purity

(99.99%)

72,200 10,325 16,000

2 Chenzhou Beihu District Township

Qingshuijiang Tin Polymetallic

Mining Co., Ltd

Graphite Ore (77%) 1,705 244 300


(99.99%)

72,200 10,325 16,000

3 Linwu County Jinjiang Dishuidai

Graphite Mine Limited

Graphite Ore (77%) 1,705 244 300


(99.99%)

72,200 10,325 16,000


– III-126 –


TABLE 7-3 Discounted Cashflow summary as of 31 January 2022

Valuation of Graphite Project31/01/2022

Year 1 2 3 4 5 6 7 8Start of period 1/2/2022 1/1/2023 1/1/2024 1/1/2025 1/1/2026 1/1/2027 1/1/2028 1/1/2029End of period 31/12/2022 31/12/2023 31/12/2024 31/12/2025 31/12/2026 31/12/2027 31/12/2028 31/12/2029

Growth Rate % 2.00% 2.50% 2.50% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%Graphite Mined (ore, 77%) T 5,000 41,850 60,000 30,000 30,000 30,000 30,000 30,000 11,800Recovery Rate % 70% 90% 95% 95% 95% 90% 90% 90% 90%Contingency Expense % of Cost 10.0% 5.0% 4.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Grade (ore, 77%) % 68% 77% 77% 77% 77% 77% 77% 77% 77%Grade (99.99%) % 99.99% 99.99% 99.99% 99.99% 99.99% 99.99% 99.99% 99.99% 99.99%Sellable Graphite (ore) T 700 — — — — — — — —

Sellable Graphite (99.99%) T 1,904 28,883 43,894 21,947 21,947 20,792 20,792 20,792 8,178Unit Price (ore) RMB/T 1,705 1,748 1,791 1,845 1,900 1,957 2,016 2,077 2,139Unit Price (99.99%) RMB/T 72,200 74,005 75,855 78,131 80,475 82,889 85,376 87,937 90,575Unit Cost (ore) RMB/T 544 557 571 588 606 624 643 662 682Unit Cost (99.99%) RMB/T 26,325 26,983 27,657 28,487 29,342 30,222 31,129 32,062 33,024

Sales (ore) RMB 1,193,500 — — — — — — — —

Sales (99.99%) RMB 137,482,548 2,137,518,855 3,329,614,398 1,714,751,415 1,766,193,957 1,723,433,472 1,775,136,476 1,828,390,570 740,741,966

Sales RMB 138,676,048 2,137,518,855 3,329,614,398 1,714,751,415 1,766,193,957 1,723,433,472 1,775,136,476 1,828,390,570 740,741,966Cost RMB (50,507,722) (779,353,585) (1,213,999,545) (625,209,766) (643,966,059) (628,375,302) (647,226,561) (666,643,357) (270,079,446)Contingency Expense RMB (5,050,772) (38,967,679) (48,559,982) (18,756,293) (19,318,982) (18,851,259) (19,416,797) (19,999,301) (8,102,383)NPBT RMB 83,117,554 1,319,197,590 2,067,054,871 1,070,785,356 1,102,908,917 1,076,206,911 1,108,493,119 1,141,747,912 462,560,138Tax 25% (20,779,389) (329,799,398) (516,763,718) (267,696,339) (275,727,229) (269,051,728) (277,123,280) (285,436,978) (115,640,034)NPAT 62,338,166 989,398,193 1,550,291,153 803,089,017 827,181,687 807,155,183 831,369,839 856,310,934 346,920,103NPM (AT) 45% 46% 47% 47% 47% 47% 47% 47% 47%

CAPEX RMB (5,145,400) (95,191,400) (40,500,000) (97,240,000)

NCF 57,192,766 894,206,793 1,509,791,153 705,849,017 827,181,687 807,155,183 831,369,839 856,310,934 346,920,103DR 10% 1.1 1.2 1.3 1.5 1.6 1.8 1.9 2.1 2.3DCF RMB 52,408,026 744,906,879 1,143,373,734 485,948,744 517,710,384 459,251,221 430,026,143 402,660,843 148,301,209

IRR 308%Pay Back Period Year 1.2

FV of 100% interest(rounded) RMB 4,380,000,000

TABLE 7-4 Sensitivity Analysis for Net Present Value of the Discounted Cashflow

NPV(RMB million)

Discount Rate8% 9% 10% 11% 12%

Com

mod

ity

Pri

ce(R

MB

/T)

90,000 6,610 6,390 6,190 6,000 5,820

80,000 5,520 5,340 5,170 5,010 4,860

70,000 4,680 4,520 4,380 4,240 4,110

60,000 3,350 3,240 3,140 3,040 2,950

50,000 2,270 2,190 2,120 2,050 1,990

Please refer to paragraph 7.4 for assumptions of valuation.


– III-127 –


7.1. Taxes

The main payments made by permit holders to the government include:

7.1.1.Mineral Royalties

The applicant must pay mineral royalties for any assignment of mining rights by the government,

which reflects the ownership of the government (‘‘the Plan for the Reform of the Mineral Resource

Royalty System’’ issued on 20 April 2017). Before that, the applicant must pay the prospecting

right price or the extraction right price for the assignment of mining rights if state investment is

involved in the prospecting or extraction work. The mineral royalties are:

. the price offered by the winning bidder if the mining rights are assigned by auction;

. the price (not necessarily the highest) offered by the winning tenderer if the mining rights are

assigned by tender; or

. the valuation of the mining rights or the market benchmark price for mining rights of similar

conditions (whichever is higher) if the mining rights are assigned by written agreements

between the permit holder and the competent authorities.

The mineral royalties must be paid with cash and payment by instalments is acceptable.

7.1.2. Prospecting Right User Fee

For the first three years, the permit holder must pay RMB100 per square kilometre each year,

increasing by an additional RMB100 per square kilometre each year from the fourth year onwards.

The maximum fee is capped at RMB500 per square kilometre each year.

7.1.3.Extraction Right User Fee

This fee is RMB1,000 per square kilometre per year. However, under the Plan to Reform the

Regime of Assignment of Mining Rights, prospecting right user fee and extraction right user fee

will be replaced with mining right occupancy fee which will be subject to dynamic adjustment

based on the price of relevant mineral resources and economic development needs.

7.1.4.Resource Tax

Basic resource tax rates for some mineral resources are as follows:

. crude oil: 6 percent of gross sales;

. natural gas: 6 percent of gross sales;

. coking coal and other coal: 2 percent–10 percent of gross sales;

. iron (concentrate): 1 percent–6 percent of gross sales;


– III-128 –


. gold (bullion): 1 percent–4 percent of gross sales;

. copper (concentrate): 2 percent–8 percent of gross sales;

. nickel (concentrate): 2 percent–6 percent of gross sales;

. graphite (concentrate): 3 percent–10 percent;

. diatomite (concentrate): 1 percent–6 percent; and

. kaolin (ore): 1 percent–6 percent

Chinese legislators approved a new law in August 2019 that will give local governments authority

to tax as many as 164 different resources, including fossil fuels, minerals and water. The standing

Committee of the National People’s Congress, China’s parliament, approved the new resource tax

law in August 2019 and it went into effect in September 2020. Major resources such as crude oil or

rare earths are still be subject to a fixed tax rate set by the central government, but local authorities

are able to adjust the rates levied on other products, according to the taxation department of the

Ministry of Finance. The law will enable governments to provide tax relief for depleted, low-grade

projects or regions hit by natural disasters. It also allows tax exemptions to be applied to serve

policy strategies like the development of coalbed methane. Local authorities will be granted powers

to levy higher rates of tax in regions where water resources are relatively scarce, but it will not

raise the overall taxes paid. China’s resource tax reforms were first introduced for products like

crude oil, natural gas and coal in 2011 and extended to other commodities in 2016.

7.1.5.Value Added Tax

The tax rate is normally 11 percent or 17 percent depending on the types of mineral resources or

mineral products. However, from 1 May 2018, the value added tax rate for mineral resources

changed from 11 percent or 17 percent to 10 percent or 16 percent (Notice on Adjustment of VAT

Rate issued by the Ministry of Finance and State Administration of Taxation on 4 April 2018).

China reduced its standard VAT rate from 16 percent to 13 percent starting on 1 April 2019. This

was expected to largely benefit manufactures as well as consumers. The reduced VAT rate on Retail

(on entertainment; hotel; restaurants; catering services; real estate and construction, telephony calls;

postal; transport and logistics) was also reduced from 10 percent to 9 percent. These measures leave

three rates in place: 13 percent; 9 percent; and 6 percent.

7.1.6.City Maintenance and Construction Tax

For taxpayers located in cities, the rate is 7 percent. For taxpayers located in counties or towns, the

rate is 5 percent. For taxpayers located in other places, the rate is 1 percent.


– III-129 –


7.1.7. Land Use Tax

For a project, the mining yard, gangue storehouse, dynamite storehouse, waste disposal site and

roads used to transport ore are exempt from land use tax. Everything else must pay at the following

rates: large cities are RMB1.5 m2 per annum to RMB30 m2 per annum (m2/g); medium cities are

RMB1.2 m2 per annum to RMB24 m2 per annum (m2/g); small cities are RMB0.9 m2 per annum to

RMB18 m2 per annum (m2/g); and counties, towns, and industrial and mining areas are RMB0.6 m2

per annum to RMB12 m2 per annum (m2/g).

7.1.8.Business Income Tax

The rate is normally 25 percent on taxable income and 20 percent for a non-resident entity whose

income has no actual connection with its establishment in China.

7.1.9.Education Surcharges

Educational surcharges are collected at the rate of 3 percent, based on the sum of VAT, business

tax and consumption tax paid by the companies.

7.2. Natural Resources in China

7.2.1. Introduction

China’s mineral resources are widely distributed throughout all provinces/autonomous regions,

municipalities, and counties. Distribution does, however, vary from region to region due to the

differences in the geotectonic zone and minerogenic conditions reflected in the vast differences in

mineral type, reserves amount and quality. Mineral resources distributed in eastern, middle, and

western regions all have different characteristics. Mineral resources include large reserves of coal

and iron ore, plus adequate to abundant supplies of nearly all other industrial minerals. Besides

being a major coal producer, China is one of the world’s largest producers of gold and the world’s

largest producer of antimony, natural graphite, aluminium, steel, rare earths, barite, zinc and

tungsten; and the third largest producer in the world of iron ore. Other major minerals are bauxite,

coal, crude petroleum, diamonds, gold, iron ore, lead, magnetite, manganese, mercury,

molybdenum, natural gas, phosphate rock, tin, uranium, and vanadium. China also exports large

amounts of tin, coals and a number of industrial minerals and is the world’s largest consumer of

steel.

According to ‘‘China Mineral Resources (2021) report’’ prepared by Ministry of Natural Resources,

PRC, a total of 96 new ore-fields were discovered, including 29 large-scale, 36 medium-scale and

31 small-scale deposits. Gold (7 places), geothermal energy (7 places), copper (6 places), ceramic

clay (5 places) and limestone for cement (5 places) ranked the top five minerals in terms of newly

discovered ore-fields. The increase in (inferred) resources included 11.96 billion tons of coal, 99

million tons of iron ore, 31.72 million tons of manganese ore, 0.86 million tons of copper, 1.39

million tons of lead-zinc, 374 million tons of bauxite, 1.43 million tons of tungsten, 442.46 tons of

gold, 532.13 tons of silver, 96.68 million tons of phosphate rocks and 7.83 million tons of graphite.


– III-130 –


In 2020, the investments in geological exploration were RMB87.19 billion in China, a decrease of

12.2% compared with the previous year. Among them, the investments in geological exploration of

oil and gas were RMB71.02 billion, decreased by 13.5%. The investments in geological exploration

of non-oil & gas mineral resources were RMB16.16 billion, decreased by 6.1%, and the decline was

aggravated compared with 2019. 2,956 wells were drilled for oil and gas exploration and the

drilling footage reached 8,394.2 km2, increased by 2.1% and 2.9% respectively. 2D seismic data

with a total area of 30,000 km2 was acquired, decreased by 41.6%; and 3D seismic data with a total

area of 42,700 km2 was acquired, decreased by 9.3%.

Among the investments in non-oil & gas geological exploration, the investments in mineral

exploration was RMB8.25 billion, decreased by 6.3% and accounting for 51.0% of the total; the

investments in basic geological survey was RMB1.99 billion, decreased by 22.3% and accounting

for 12.3% of the total; the investments in hydrogeology, environmental geology and geological

disaster survey and evaluation was RMB3.45 billion, decreased by 0.3% and accounting for 21.4%

of the total; the investments in geological science and technology and comprehensive research was

RMB2.20 billion, increased by 11.3% and accounting for 13.6% of the total; the investments in

geological data service and digitalisation was RMB0.27 billion, decreased by 33.1% and accounting

for 1.7% of the total.

In 2020, the national resources tax revenues totalled RMB175.5 billion, showing a decrease of

3.7% year on year, and accounting for 1.1% of the national tax revenues. The revenues from

transfer of mining rights totalled RMB112.32 billion, increased by 19.3%, and the charges for use

(appropriation) of prospecting rights and mining rights totalled RMB2.85 billion, decreased by

20.9%.

Compared with 2019, among the newly offered prospecting rights in 2020, the proportion of rights

transferred through competition such as bidding, auction and listing increased from 43% to 73%,

and that of rights transferred under agreement decreased by 26% with most for deep exploration

projects at existing projects. In 2020, over 80% of the newly offered mining rights were transferred

through competition such as bidding, auction and listing, and the mining rights transferred under

agreement only accounted for 2%. From the implementation of Document No.7 issued by the State

Council of the PRC dated 19 May 2021, a total of 263 prospecting rights and 1598 mining rights

have been transferred in a competitive manner across the country. It has become a consensus to

acquire mining rights through fair competition.

7.2.2.Market Status for the Main Project Commodities — Graphite

Graphite, one of crystalline minerals of carbon, which possesses many characteristics, such as

lubricity, chemical stability, resistance to high temperature, electric conductivity, special thermal

conductivity and plasticity, coating ability and so on, is widely used in various industrial sectors

such as metallurgy, casting, electric power, machinery, light industry, nuclear industry, and space

industry.


– III-131 –


The global graphite market is segmented based on type, application, and geography. Based on type,

it is divided into natural graphite and synthetic graphite. The natural graphite segment is further

sub-categorised into flake graphite, amorphous graphite, and vein graphite. The synthetic graphite

segment is further classified into graphite electrode, graphite block, carbon fibre, graphite powder,

and others.

Graphite minerals are divided into two categories in China, namely, crystalline graphite and

cryptocrystalline graphite (also named ‘‘amorphous graphite’’). Flake graphite, which looks like fish

scales, is produced by processing, mineral dressing, and purification of crystalline graphite

minerals. The flake graphite, high purity graphite (its content of fixed carbon is 99.9 percent and

higher) is mainly used for the manufacturing of flexible graphite sealant to replace the platinum

crucible in melting of chemical agent, and as lubricant base material and so on. High-carbon

graphite (with a fixed carbon content of 99.9 percent–94 percent) is mainly used in refractory,

lubricant base material, electro-brush raw materials, electro-carbon products, battery raw materials,

pencil raw materials, fillers, coating etc. Middle-carbon graphite (its content of fixed carbon is 94

percent–80 percent) is largely used in crucible, refractory, casting material, casting coating, pencil

raw materials, battery raw materials, dyeing etc. Low-carbon graphite (with a fixed carbon content

of 80 percent–50 percent) is mainly used in casting coating. Cryptocrystalline graphite, a product

which was once called earthy graphite, amorphous graphite or microcrystalline graphite and comes

from processing, mineral dressing, and purification for some products of cryptocrystalline graphite,

is a compact aggregate constituted of minute graphite crystals. Cryptocrystalline graphite, with a

content of acid-soluble iron of not more than 1 percent, is mainly used in the production of pencil,

battery, welding rod and graphite emulsion, and as an ingredient of graphite bearing and raw

materials of battery carbon bars. Cryptocrystalline graphite, without requirement on the content of

iron, is mainly used in casting raw materials, refractory, dyestuff, electrode pasty stock etc.

The global graphite market is expected to witness various growth opportunities, owing to rise in the

demand for lightweight materials in aircraft components such as carbon fiber-reinforced polymers.

The battery production application possesses maximum market potential in the market, owing to

rapid developments and advancements in the technologies adopted in the production of lithium-ion

batteries. Moreover, rise in the demand for graphite, specifically in steel industry as a liner for

crucibles & ladles, are another major factor driving the overall demand for graphite globally.

On the basis of application, the market is classified into lubrication, refractories, foundry, battery

production, and others. The battery production segment is anticipated to register a significant

CAGR in the future. Geographically, the global graphite market is divided into North America,

Europe, Asia-Pacific, and Latin America and Middle East Africa.

Key market players have invested significantly on Research and development activities to develop

advanced products to cater to the demand of end users. The major players in the graphite market

includes to Northern Graphite Corporation, Asbury Graphite Mills, Inc, Energizer Resources Inc,

Mason Graphite, Flinders Resources Ltd, Focus Graphite Inc, Showa Denko K.K, SGL Carbon SE,

SEC Carbon Limited, Graphite India Limited.


– III-132 –


The market trade of Graphite has some specific considerations which includes that Graphite is not

an openly traded mineral, prices are negotiated between end users and producers for annual and,

sometimes, multi-year contracts, the prices of graphite vary according to different parameters such

as carbon content (purity), size, impurities and shape.

The rising application of graphite in industrial and commercial sectors has been driving the market

growth at a strong pace. The global graphite market is expected to reach USD 29.05 billion by

2022. The staggering growth of several downstream industries, particularly steel, automotive,

electronics, and aerospace sectors, has directly facilitated the production and exports of graphite

around the world. The demand for graphite from leading manufacturers of electric and hybrid

vehicles has witnessed the largest increase over the past few years as those rechargeable lithium-ion

batteries consume twice the amount of graphite than lithium carbonate.

Meanwhile, the rising demand for smartphones, mobile devices, and other electronics has also

significantly contributed to the increased use of graphite. As technology continues to evolve, the

use of graphite in an increasing number of applications is also expected to further push the growth

of the global graphite market in the near future.

Geographically, in the global graphite market China is the lead. In recent years, several new

graphite plants were established in the Asia-Pacific and various long-term agreements were signed

between graphite manufacturers in the Asia-Pacific and companies operating in the automotive and

wind energy industries in Europe, contributing hugely to the growth of the graphite market in the

region. Some of the world’s largest graphite suppliers include China Graphite Ltd., Hitachi

Chemical Co., Ltd., Asbury Graphite Mills, Inc., Nippon Graphite Industries, Conoco Phillips,

Superior Graphite Co., Graphite Kropfmuhl, and GrafTech International.

China has been dominating the global graphite production and graphite exports since the 1990s.

According to the latest F&S Report, domestic production rebounded steadily to approximately

700.0 thousand tonnes in 2019 from approximately 625.0 thousand tonnes in 2017, mainly driven

by the growth in lithium-iron batteries and EAF (Electric Arc Furnace) steel sector in China. Going

forward, with increasing demand from downstream sectors including refractory materials, lubricant

and lithium-ion batteries, domestic natural graphite production is expected to increase continuously

at a CAGR of approximately 6.0% from approximately 719.6 thousand tonnes in 2021 to

approximately 907.6 thousand tonnes in 2025.

TABLE 7-5 China’s graphite output during 2018 to 2023

(Thousand Tonne)

Actual ForecastType 2018 2019 2020 2021 2022 2023

Crystalline 508 420 357 402 437 466

Cryptocrystalline 185 280 292 316 341 365

Total 693 700 650 719 779 832


– III-133 –


7.3 Commodity Prices and Exchange Rates

Information from the F&S Report indicates that the average market price of the ultra high purity

graphite is about RMB72,200/t in 2021.

For the purposes of this Report, the considered exchange rate is 1.2149 RMB/HKD, which is

approximately the exchange rate as of the effective date of 31 January 2022.

7.4. Assumptions for Valuation

The factors considered in the valuation included, but were not limited to, the following:

. The nature and history of the Mining Companies;

. The economic condition and the industry outlook in general;

. The specific economic environment and competition which the Mining Companies may face;

. The financial and business risks under the Mining Companies including the continuity of

income and the projected future results.

Due to the changing environment in which the Mining Companies is(are) being operated, a number

of assumptions have to be established in order to sufficiently support our concluded opinion of

value of the Mining Companies. The major assumptions adopted in our valuations are:

. There will be no major changes in the political, legal, economic or financial conditions and

taxation laws in the jurisdiction where the Mining Companies currently operate(s) or will

operate which will materially affect the revenues attributable to the Mining Companies, that

the rates of tax payable remain unchanged and that all applicable laws and regulations will be

complied with;

. Assumed there is no big difference between adopted exploitation in valuation and actual

exploitation;

. Assumed the management of the Mining Companies can arrange production in accordance

with forecasted time and scale, and there is no big difference between actual and forecast

situation;

. Assumed the Instructing Party provided technical report and related information was accurate

and no big mistake;

. Key management, competent personnel, and technical staff will all be retained to support

ongoing operations of the Mining Companies;

. Interest rates and exchange rates in the localities for the operation of the Mining Companies

will not differ materially from those presently prevailing;


– III-134 –


. Assumed the Mining Companies already obtain all the necessary permits and licences,

included but not limited to the approval for environmental impact assessment report, pollutant

emission permit, mining licence, work safety permit, land use right certificate, building

ownership certificate, and all these permits and licences will be renew and without substantial

cost;

. Assumed all equipment for mining, processing & refinery are ready for the operation of the

Mining Companies;

. Assumed all expired and going-to-be expired licences can be renewed accordingly without

substantial costs; and

. The refinery process and cost of producing ultra high purity amorphous graphite product are

based on a ‘‘Chinese Graphite Industry Report’’ dated June 2021 provided by Frost & Sullivan

and the management. The valuation relied on the selling price of RMB230,000/T and refinery

cost of RMB15,000/T mentioned in this Chinese Graphite Industry Report.

8. INFRASTRUCTURE

8.1. Roads

Project Dengzhanwo is located approximately 40 km southwest of 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. Furong Township is about 55 km away from Chenzhou City.

The project is connected to S214, the Guiyang-Linwu Provincial Highway,107 National Highway,

Beijing-Zhuhai Expressway and Beijing-Guangzhou Railway.

Project Qingshuijiang is located 38 km southwest of Chenzhou City, and is administratively under

the jurisdiction of Furong Township, Beihu District, Chenzhou City. There is a two-lane road

leading to Furong Township in the mining area. Furong Township is about 55 km away from

Chenzhou City. It is connected to 107 National Highway, Beijing-Zhuhai Expressway and Beijing-

Guangzhou Railway.

Project Dishuidai is about 70 km driving on highway and provincial roads to Chenzhou Railway

Station. There is a 7-km long township high quality roadway connecting the project and the S214

provincial road.

The Independent Technical Consultants note that the road access to Project Qingshuijiang and

Project Dishuidai is all at excellent levels while Project Dengzhanwo is under further enhancement.

8.2. Power Supply

Power is provided by local 10 kV power supply connected to the main grid. The transformer

capacities of each project facility are designed based on power consumption of each project.

Considering that the development systems and the main electronic equipment used for the three

Projects, i.e., the pressure and exhaust main fans, pumps, decline winches, water pumps,


– III-135 –


transformers, tramcars, electric rakes, and charging racks etc., the Independent Technical

Consultants are of the view that one 100 kVA transformer and one 50 kVA transformer are needed

to generate sufficient power for each of the three Projects, which is detailed as:

. Project Dengzhanwo: 100 and 50 kVA transformers,

. Project Qingshuijiang: 100 and 50 kVA transformer, and

. Project Dishuidai: 100 and 50 kVA transformers

. A list of the power generation sets is as follows:

. Project Dengzhanwo: 70 kW,

. Project Qingshuijiang: 70 kW,

. Project Dishuidai: 70 kW.

According to the actual production situation of the Projects, power supply has not been a problem

for the local mining operations. The Independent Technical Consultants consider that there are no

foreseeable limitations with power supply for the current production capacity of the mining licences

and even for the expanded operation in the future.

8.3. Water Supply

There are no processing plants planned to build up at the Project sites. The water requirement for

the mining operations in the future is for underground mining operations and domestic water usages

for the project workers. The Independent Technical Consultants were told that the water collected

from the adits can be used for operations, and the local stream fresh water is the source for cooking

and washing of the project workers’ living on site. The Independent Technical Consultants

considers that there are no foreseeable limitations with water supply, even in the case that the plan

expanded in the future.

Domestic sewage and laboratory wastewater are discharged after treatment and reaching the

discharge standard. Rainwater is discharged through nearby road drainage ditches.

8.4. Waste Rock Dumping

The waste rocks are generated from underground tunnelling, cuttings, and rocks taking out of the

graphite ores. The waste rocks are transported to waste dumping ground outside the main entrance

and sold or free to the local builders for construction uses.


– III-136 –


9. HEALTHY AND SAFETY

9.1. Safety Assessment and Approval

Each of the three mining Projects has an approved production capacity of 30 ktpa as defined in the

mining licence. However, except for the mining licence, there are additional operational licences

required for the mining operations carried out within the mining licence areas, such as a work

safety permit must be issued by the counterpart government bureau or department.

Work Safety Permit (WSP)

The Independent Technical Consultants have reviewed the WSPs for the three Projects. Project

Qingshuijiang has a valid WSP valid until December 2023. Project Dishuidai has a valid WSP valid

until January 2022. For Project Dengzhanwo, the application of a WSP is under way. The

Independent Technical Consultants were told that the renewal applications of WSPs for the three

Projects have been a normal work for the Company to carry out, which is made together with the

applications of renewing mining licences for the three Projects. The photocopies of the WSPs for

Project Dishuidai and Project Qingshuijiang are attached at the APPENDIX A of this Report.

Safety Assessment Report (SAR) and Government Approvals

As required, each of the three Projects needs to prepare a Safety Assessment Report (SAR) to be

reviewed by Administration of Work Safety (the ‘‘AWS’’) and registered as in a Registration From

if it passes the verification of local (City or County level) AWS. After that, a Safe Production

Certificate will be issued by Hunan Provincial AWS. The Independent Technical Consultants have

reviewed the SARs for Project Dishuidai and Project Qingshuijiang and found the assessment report

were prepared in accordance with the relevant Chinese safety management and supervising

guidelines.

Licence for Blasting Operation Entities

China has a very strict controls for using the explosives, the mining company must obtain a licence

for blasting operation entities before getting any explosive materials. The Independent Technical

Consultants checked that Project Dishuidai has a licence for blasting operation entities expired in

January 2022, neither Project Dengzhanwo nor Project Qingshuijiang has an updated valid licence

as their operations have ceased for a long period of time.

9.2. Health and Safety Management and Observation

During the site visit by the Independent Technical Consultants to the Graphite Mining Project, the

Independent Technical Consultants observed that safety signs were in place, safety provisions and

rules were also displayed within the work areas, moving machinery parts were appropriately

guarded and covered, guard railings were installed on all gantries, and proper Personal Protection

Equipment (‘‘PPE’’) was provided and was being used by the workers, such as hardhats, traffic

vests, and steel toed shows.


– III-137 –


The Independent Technical Consultants have reviewed the occupational health and safety (‘‘OHS’’)

management system and procedures, which provides the following summary in respect to the

proposed OHS management measures for the Projects:

. Mining, blasting and explosives handling;

. Side slope failure prevention;

. Waste rock disposal;

. Environmental dust and noise suppression;

. Emergency response;

. Fire protection and fire extinguishment;

. Sanitary provision;

. Power provision;

. Labour and supervision; and

. Safety administration.

The Independent Technical Consultants note that the above OHS management measures are

generally in line with recognised Chinese industry practices and Chinese safety regulations. Safety

licences of these three Projects provided to the Independent Technical Consultants at the time of

reporting.

10. ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENT

10.1. Environmental and Social Review Objective

The objective of this environmental review is to identify any existing and potential environmental

liabilities and risks, and to assess and comment on any associated proposed remediation measures

for the three mining Projects.

10.2. Environmental and Social Review Process, Scope and Standards

The process for the verification of the environmental compliance and conformance for the Projects

comprised a review and inspection of the project’s environmental management performance against:

. Chinese National environmental regulatory requirements.

. Equator Principles requirements/International Finance Corporation (IFC) environmental and

social standards and guidelines, and internationally recognised environmental management

practices.


– III-138 –


10.3. Status of Environmental Approvals

The details of the Environmental Impact Assessment (EIA) reports and approvals for the three

mining Projects are presented in Table 10-1.

TABLE 10-1 The Three Projects in Chenzhou, EIA Report and Approvals

Project EIA ReporterDate of

Reporting Approved byYear ofApproval

ReferenceNumber

Project DengzhanwoCoal Geological

Exploration Instituteof Hunan Province

September 2010Environmental

Protection Bureau ofChenzhou City

2010 N/A

Project QingshuijiangXiangnan GeologicalExploration Instituteof Hunan Province

March 2005Environmental


2005Chen Huan Fa[2005] No. 28

& 30

Project DishuidaiYuanjing Explorationand Design Co. Ltd.

July 2017Environmental


2018Chen Huan Han[2018] No. 129

The Water and Soil Conservation (WSCP) Plan of the three mining Projects are presented in Table

10-2 below.

TABLE 10-2 The Three Projects, WSCP Report and Approvals

ProjectWSCP Person

ReporterDate of

Reporting Approved byDate ofApproval

ReferenceNumber

Project DengzhanwoLiancheng

Construction ServiceLtd.

November 2014Water Authority of

Beihu County2014

Bei Shui Xu[2014] No. 17

Project QingshuijiangZhenyuan

Hydroelectricity TechService Ltd.

August 2019Water Authority of

Beihu County2019

Xiang Shui Han[2019] No. 332

Project DishuidaiFulang Science &Tech Consulting

Co. Ltd.November 2017

Water Authority ofLinwu County

November 282017

Lin Shui [2017]No. 205

The Independent Technical Consultants also reviewed the Mine Geological Environmental

Restoration and Land Rehabilitation (GERLR) Reports prepared by relevant qualified service

teams. Table 10-3 lists out the details. The report is required for the application of renewing mining

licence.


– III-139 –


TABLE 10-3 Project Geological Environmental Restoration and Land Rehabilitation

Project EIA ReporterDate of

Reporting Approved byYear ofApproval

ReferenceNumber

Project Dengzhanwo

Coal Geological

Exploration Institute

of Hunan Province

September 2010

Environmental

Protection Bureau of

Chenzhou City

2010 N/A


Xiangnan Geological

Exploration Institute

of Hunan Province

March 2005

Environmental


Chenzhou City

2005

Chen Huan Fa

[2005] No. 28

& 30

Project DishuidaiYuanjing Exploration

and Design Co. Ltd.July 2017

Environmental


Chenzhou City

2018Chen Huan Han

[2018] No. 129

Table 10-4 shows the results of the environmental impact assessment for Project Dishuidai prepared

by Yuanjing Exploration and Design Co. Ltd. in July 2016.

TABLE 10-4 Results of EIA for Project Dishuidai as reported in July 2016

Natural and LivingEnvironment

EnvironmentalGeology Issues

Where to theIssues Objects

Status ofLosses

Scale of theImpacts

Water Resources and the

Environment

Aquifer dewatering No No No Small

Regional groundwater

balanceNo No No Small

Surface water leakage No No No Small

Pollution to water

bodiesMining areas

Water quality

and landLess Small

Land Resources

Land used for Surface

facilitiesProject sites

Use of

woodland1,730 m2 Small

Land used for ore and

rock storageProject sites

Use of


Land used for Project

site roadwaysProject sites

Use of



– III-140 –


Natural and LivingEnvironment

EnvironmentalGeology Issues

Where to theIssues Objects

Status ofLosses

Scale of theImpacts

Soil and Earth Environment

Ground deformation Mining areas No No Small

Soil erosion and land

desertificationMining areas No No Small

Waste rocks

damaging to soil and

earth environment

Waste rock

piles or storage

Damages to

woodlandLess Small

Mine pit water and

leaching water

mining pit and

waste rock pilesSoil Less Small

Geological Disasters

Collapse, landslide

and debris flow

geological hazards

No No Less Small

Surface collapse and

ground fissureNo No Less Small

Scenery and Living

Environment

Buildings, facilities,

and natural reservesProject site No Light Small

Surrounding

landscapesProject site

Scarred to

the hillsLight Small

Living environment Project site No Light Small

The Independent Technical Consultants notes that the reviewed EIA reports have been compiled in

accordance with relevant Chinese laws and regulations. The Independent Technical Consultants

have reviewed the EIA report for Project Dishuidai and its approvals against recognised

international industry environmental management standards, guidelines, and practices when

carrying out a site visit in July 2021. The Independent Technical Consultants did not see any non-

governmental organisation impacts on sustainability of mineral and/or exploration projects. The

Independent Technical Consultants did not see any environmental liabilities of its projects or

properties, nor any claims that may exist over the land on which exploration or mining activity is

being carried out, including any ancestral or native claims. As we noticed the Company has

successfully renewed the work safety permit of Project Qingshuijiang in 2020, we believe it has

experience of dealing with concerns of local governments and communities on the sites of its

projects, exploration properties, and relevant management arrangements. We did not see any

operational and financial impact of newly introduced or pending environmental regulations/

programs, and the associated risks.

10.4. Pollution Sources and Mitigation Measures

The Independent Technical Consultants make assessments of the pollution sources of the project

and provides comments in respect to the mitigation measures that the mining company needs to

plan and act for the future operations.


– III-141 –


Air Pollution

During the underground production process, the air pollution sources include the exhaust gas

generated during underground drilling, dusts from fixed pollution sources such as temporary ore

storage yard, and the dust during loading, unloading and transportation of ores.

The project is designed to adopt wet drilling technology. Before drilling and after mining, water

and dust suppression measures are applied to the mining area. For all kind of operation points and

materials which will generate dusts easily by spraying water can reduce dust emissions. A

contracted worker is required to spray water regularly on the waste rocks and ore pills,

approximately 3–5 times a day, 2–3 minutes per session to keep certain moisture on the surface of

the yard. This is to control wind erosion and flying dusts.

Water Pollution and Management

The main sources of mining wastewater from the existing underground mining operations are the

fissure water inflows in underground tunnels and mining blocks, as well as the domestic sewage

from the industrial site at the entrance of the tunnel. The underground wastewater flows to water

collecting pound. Part of the collected water is used for dust reduction in rock drilling and blasting,

industrial square, waste rock yard and ore turnover yard, and the surplus is directly discharged into

the environment.

There are expected to be approximately over 100 workers at work for each of the three Projects.

The domestic water source is from nearby water streams, which is then distributed to the industrial

square of each mining area by water pipeline. Domestic water is mainly used for kitchen, and

workers’ washing and showing, and the usage is about 50 L/d per person making the total water

usage of around 5 cu.m/d only.

As stated in the EIA report of the Projects, all the domestic water in each industrial site is

comprehensively utilised and not discharged. Part of the underground inflow water will be used for

underground dust suppression, and the surplus water is discharged to the environment. Each project

will be equipped with a 100 cu.m water pound. It is required to build a collection tank (10 cu.m) in

each industrial site. This part of wastewater is used for dust-fall and watering in the site, and

discharge to outside area is not allowed. Domestic sewage is strictly prohibited to be discharged

into the nearby streams. The faecal water from the dry toilet is used to fertilise the surrounding

forest. The Independent Technical Consultants recommend that quality monitoring of the

groundwater and surface water resources within the project area (including upstream and

downstream of the project area) should be carried out regularly by the Projects. This water quality

monitoring should form part of a broader site environmental monitoring program.

Solid Wastes and Management

The solid wastes generating from the Projects are from two sources, one is the waste rocks from

underground tunnelling and mining operations, and the other is the domestic waste of mining

workers. The Independent Technical Consultants noted from the EIA report, the analysis of waste


– III-142 –


rock leaching experiment results shown that the waste rock belongs to ‘‘Class I’’ general industrial

solid waste. The waste rock from the underground is transported to waste rock yard, which is in the

most cases sold to or free giving to the local builders for construction purposes.

Hazardous Materials Management

Hazardous materials have the characteristics of corrosive, reactive, explosive, toxic, flammable and

potentially biologically infectious, which pose a potential risk to human and/or environmental

health. The hazardous materials will be generated mainly by the project’s construction, mining. In

the future, when a mineral processing plant built up and operating, the hydrocarbons (i.e., fuels,

waste oils, and lubricants), processing reagents, chemical and oil containers, batteries, medical

waste, and paint are all hazardous materials need to be treated properly. The Independent Technical

Consultants recommend that the collected waste oil, fuel tanks and dangerous chemical should be

stored with secondary containment which is in line with the recognised International Industry

Management practices.

Site Ecological Environmental Assessment

As stated in the EIA report for each mining project, the project site surrounding is most of the area

being woodland. The land used by the project will change its the original status, damage to

vegetation, and cause soil erosion, and further to change the local surface ecological landscape and

ecological environment. The Independent Technical Consultants noted that it is required by the

project owner (the Company) to strengthen green concepts and practices in the industrial sites and

project areas, and to spray water on temporary ore piles and waste rocks at the mining site on

surface and in underground.

The EIA report also suggested the Company to follow the guidelines stated in the Development and

Utilisation Plan to operate within the designed mining areas and production schedules. For the

undeveloped mining areas, the project owner should maintain the existing ecological environment,

enhance the management of waste rock yards in each mining area, prevent geological disasters to

their highest possible degree, and should also carry out the green practices. The Independent

Technical Consultants noted that the Company has been following the principles of mitigation

disturbance and pollution in the mining licence and its surrounding areas.

Noise Emissions and Mitigation Measures

The main sources of noise emissions from the Project are those generated from the mining and

processing plant operations, (if any) which include drilling, blasting, loading, haulage, crushers,

(for mineral processing plant, it includes ball mills, draught fans, pumps and other processing

equipment), and movement of vehicles/mobile equipment.

The EIA reports stated that high intensity noises (such as sounds generated from drilling, blastingactivities, etc.) mostly come from underground. The noise generated from drilling activities inunderground is intermittent, which mainly affects the underground operation environment. Further,since such noise has a considerably large distance from the surface, it will only create a slightimpact.


– III-143 –


In the meantime, blasting noises occur underground, therefore it is necessary to implement theregular operation system of prior notification, and to improve the process for reducing the explosivequantity. On the surface, high-capacity noises are from air compressors, fans, transport vehicles andpumps, and so on. To effectively reduce the noise level at the surface, low noise equipment isselected in the design, axial flow fans are selected for ventilation, and turning the air outflowmouth away from the direction of the protection targets, and noise reduction measures such assetting damping foundation and keeping the equipment indoor. These measures can reduce the noiseintensity by approximately 20–30 dba. The transportation noise can be reduced by lowing thedriving speed, such as 20 kmph in the field and 40 kmph outside the field.

Planning and Rehabilitation for Site Closure

The Chinese national requirements for project closure are covered under:

i. Article 21 of the Mineral Resources Law of People’s Republic of China (Amended in 2006);

ii. Rules for Implementation of the Mineral Resources Law of the People’s Republic of China(1994);

iii. Mine Site Geological Environment Protection Regulations (Amended in 2019); and

iv. Land Rehabilitation Regulation (2011) issued by the State Council.

In summary, these legislative requirements cover the need to conduct land rehabilitation, prepare asite closure report, and submit a site closure application for assessment and official approval.

The Independent Technical Consultants reviewed the Mine Geological Environmental Restorationand Land Rehabilitation Reports prepared by relevant qualified design or engineering and researchinstitutes or companies as listed in Table 10-3 of this Report. The rehabilitation cost is aboutRMB605,000, RMB242,000, and RMB126,000 for Project Dengzhanwo, Project Qingshuijiang andProject Dishuidai, respectively. The Independent Technical Consultants believe that the projectowner has been taking measures for the rehabilitation of disturbed land within the mining operationareas.

10.5. Social Issues

It is believed that the operations of the three Projects will certainly bring job opportunities for thelocal communities. The local government officials and the residents have hopes to develop the localeconomy by the mining operations. The Independent Technical Consultants talked to the Directorsof the Company and encouraged the management of the Company to hire local workers for theirmining Projects at priority, so as to make sure they can earn a living on the development of themining project.

Average monthly wage of the front-line workers of the mining operation could be approximately

RMB3,000 to RMB5,000, which means an annual income of RMB36,000 to RMB60,000 can be

achieved. Such annual income is much higher in comparison to a local farmer.


– III-144 –


After the implementation of the Projects, the transportation industry, processing industry, repair

industry, raw material trading industry and other enterprises related to the development and

operation of the mining Projects will grow rapidly. At the same time, business volume of the local

industry and commerce, taxation, communication, and administration will also be incremental

growth as well. The sustainable operations of the three graphite Projects will change the original

unitary economy into diversification, the secondary and tertiary industries are boosted, and have

effectively contributed constructively to the development of the local economy.

11. RISKS AND OPPORTUNITIES

11.1. Risks

The following are the potential risks that the Independent Technical Consultants believe may impact

the economic or safety potential for the mining operations:

RisksSuggested solutions

to Company Target Date

Effectively managing all the

operations as an integratedportfolio may be a challenge,

especially trying to implement

corporate policies (particularly

those related to the

environment and mine safety)in projects that, until now,

being managed as stand-alone

operations.

The Company can set up a

working group or committeewhich aims to manage the

stand-alone operations

comprehensively, consolidates

and passes messages within the

working group.

It can facilitate better

communications and efficiency

within the group, and provide

timely solutions when issues

occur.

To be rectified by December

2022 per management

The Company may not fully

utilise the mineral assets in the

Projects, such as insufficient

exploration and resource basein the Project sites.

It can be easily overcome by

initiating a systematic program

of mineral right acquisitions.

The Company should initiate

conversations with the owners

of mineral rights surrounding

its Projects, in order to expand

its resource base.


2025 per management


– III-145 –




The Company may not fully

understand the quantity and

quality of its existing and

future mineral assets under theProjects, which can be further

classified as Inferred

Resources.

The Company can initiate an

intensive exploration program

to investigate its current and

potential mineral assets underthe projects, which can better

understand resources and

expertise to input in the future.

The Company should also startconversations with geological

exploration companies within

the areas of influence of its

Projects.


2025 per management

The majority of the operationsare semi-mechanised, with their

capacities relatively small.

The Company should pay moreefforts to improve the

efficiency of the operations,

whenever additional reserves

were properly identified.

The Company should also start

applying for licences from the

local government for a larger

production capacity for its

projects.

These actions will significantly

increase the value of its

Projects.

To be rectified by December2023 per management


– III-146 –




Surplus in production and

decrease in demand for many

commodities in the PRC may

result in generally lowcommodity prices.

Such low price may pose

severe impact to the

Company’s operational cashflows in the future.

Meanwhile, operation and

profit margins of the Company

may be compressed with

reduced revenue and increasedoperational cost.

The Company should develop

thorough and comprehensive

financial plans, as well as

exercising stringent costcontrol measures to maintain a

healthy profit margin on its

operations.

The Company should alsocarry out various sensitivity

and scenario analyses which

demonstrates potential negative

impact to the Company’s future

operations, and initiate

programmes and measures toalleviate such negative impact.

As of the Effective Date,

operation and profit margins of

the Company maintains at a

healthy level with regards to itscurrent mineral assets.

The Company may not have

the ability to maintain

competitiveness while keepingproduction cost at a relatively

lower level under a difficult

market situation.

The Company can hire industry

related professionals to develop

effective and competitive costcontrol measures to maximise

profits when maintaining its

competitiveness in the industry.

The Company should alsocarry out various sensitivity

and scenario analyses which

simulates potential negative

impact to the Company’s future

operations, and initiateprotective programmes and

measures to alleviate such

negative impact.


2025 per management

The Company may not have

financial instruments to hedgeagainst the price of its

products.

The Company should consult

financial advisors beforepurchasing certain commodity

related futures products.


2023 per management

The Independent Technical Consultants estimated that the overall risk of the mining projects is lowto medium. The estimated results are summarised in Table 11-1 below.


– III-147 –


TABLE 11-1 Summary of Project Risk Assessment regarding the 3 Projects

Risk issues Likelihood Consequence Overall

Geology and Resource1. Lack of Significant Resources Unlikely Moderate Low

2. Lace of Significant Reserves Unlikely Major Medium

3. Significant Unexpected Faulting or Other Structure Possible Moderate Medium

Mining4. 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 Processing9. 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 Costs13. 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

Environmental and Social Risks

17.Surface water management and discharges

(i.e., stormwater runoff, erosion control measures)Possible Moderate Medium

18.Groundwater management and discharges

(i.e., project dewatering and seepage from the WRD)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

To ensure the technical integrity of the risk analysis process as applied in the project technical

review process, the following Australian Standards for risk analysis and risk management have been

utilised for overall guidance:

. AS/NZS 3931:1998 Risk Analysis of Technological Systems — Application Guide;

. AS/NZS 4360:1999 Risk Management; and

. HB 203:2004 Environmental Risk Management — Principles and Process.


– III-148 –


These Australian Standards have been developed in line with comparable international standards. A

risk is generally described in terms of the severity/consequence and likelihood of an undesirable

occurrence or incident. The greater the potential severity and likelihood of an undesirable

occurrence, the higher the level of risk associated with the related activity.

The generic approach for this project technical review qualitative risk analysis has the following

three steps:

. Establish the context/define the scope of the analysis — goals/objectives, the analysis strategy

and evaluation criteria;

. Identify and analyse the risks in terms of consequence and likelihood; and

. Evaluate and rank the risks.

Qualitative Risk Analysis — Scope

The scope definition and context for the qualitative risk analysis can be summarised as follows:

. Goals/Objectives — The primary objective is to analyse the qualitative risks associated with

the project’s development, operational and closure aspects.

. Strategy — The strategy employed comprises the application of a qualitative risk analysis

where the ‘relative magnitude’ of risks associated with the project are estimated. Inclusive

within this process are also the concepts of inherent and residual risks. Inherent risks being

those hazards that are present within the project without any remedial management, and

residual risks are defined as those hazards remaining after the application of remedial risk

management measures. The risks analysed are those considered as the ‘inherent risks’ for the

project at the time of the technical review.

This qualitative risk analysis strategy has the following key steps:

Step 1 — Develop a qualitative risk matrix. This has relative significance rankings for the potential

consequences/impacts, levels of event likelihood and the corresponding risk rankings from

negligible to extreme.

Step 2 — Define the inherent risks (i.e., at the time of the technical review). List the sources of

risks and apply the qualitative risk analysis to define the level of risk.


– III-149 –


Qualitative Risk Analysis Matrix

The proposed qualitative risk matrix uses the following definitions for consequence and likelihood:

Consequence

. Catastrophic: Disaster with potential to lead to business failure;

. Major: Critical event/impact, which with proper remedial management, will be endured;

. Moderate: Significant event/impact, which may be managed under normal procedures;

. Minor: Consequences/impacts that may be readily absorbed, but some remedial management

effort is still required;

. Insignificant: No additional/remedial management required.

Likelihood:

. Certain: The event is expected to occur in most circumstances;

. Likely: The event probably will occur in most circumstances (i.e., also could be on a regular

basis such as weekly or monthly);

. Possible: The event should occur at some time (i.e., once in a while);

. Unlikely: The event could occur at some time;

. Rarely: The event may occur only in exceptional circumstances.

Based on these definitions the Qualitative Risk Matrix, as Table 11-2, is presented below.

TABLE 11-2 Summary of Qualitative Risk Matrix

ConsequenceLikelihood Insignificant Minor Moderate Major Catastrophic

Certain Low Moderate Moderate High Extreme

likely Low Moderate Moderate High High

Possible Negligible Low Moderate Moderate High

Unlikely Negligible Low Low Moderate Moderate

Rarely Negligible Negligible Negligible Low Moderate


– III-150 –


The risk definitions from this risk matrix can be further grouped into risk evaluation categories that

are based on regulatory compliance and the ability for the risk to be managed to a level that

conforms to industry standards, guidelines and/or codes of practice. These are:

Category 1 — Unacceptable Inherent Risks (Extreme/High risks): can be defined as those sources

of risk that are essentially unacceptable, which if uncorrected, may result in business failure or

critical impacts to business;

Category 2 — Tolerable Inherent Risks (Moderate risks): can be defined as those sources of risk

that are tolerable and while, at the time of the technical review, they are non-compliant/non-

conforming they can made to be compliant/conforming (acceptable risks) through the application of

risk management measures;

Category 3 — Acceptable Inherent Risks (Low/Negligible risks): can be defined as those sources

of risk that are acceptable and are compliant with legal requirements and conform to recognised

industry standards, guidelines and codes of practice.

11.2. Opportunities

The following are areas where the Independent Technical Consultants believe that the operations

have opportunities for improvements that will increase the safety and or profitability of the

Projects.

. The Independent Technical Consultants believe that all three Projects are able to produce at

the projected levels or higher, based on the way the Projects are constructed, combined with

the operating experience from the managing and operating teams. The Company controls a

portfolio of mineral assets that is diversified in the type of minerals it holds, and on the

geographic location of these Projects.

. The regional geology of all the areas where the Projects are located is well known. The fact

that the continuity of the mineralized bodies beyond the boundaries of the subject properties

has been well established is an encouraging factor to proceed with the expansion of the

existing operations. The existence of other mineable areas that have not been explored yet

offers the opportunity to add Resources and Reserves by obtaining the necessary mining

licences. These additional resources could be significant, based on the current knowledge of

the region’s geology and the extensive exploration carried out by the owners.

. Good infrastructure in place is fundamental for the success of a mining operation. The

majority of the Company’s operations are located in well-established mining districts with

good access roads, particularly suitable for small-to-medium size operations. As previously

mentioned, expansion plans will require investment in infrastructure improvement.


– III-151 –


. Graphite, as explained in this Report, is a ‘‘hot’’ commodity, particularly thanks to its multiple

applications, such as dry lubricant, and many electrical uses. Graphite materials remain the

dominant active anode material used in lithium-ion batteries. The performance of graphite as a

safe and reliable material that provides sufficient energy density for many portable power

applications, such as mobile phones and laptop computers, explains this dominance.

. The commercial-scale implementation of the technology for purifying amorphous graphite ores

to ultra high purity graphite would significantly increase the profitability of the operations and

the value of the whole graphite project.

. Project Dishuidai is perhaps one of the most attractive assets of this portfolio. It consists of a

graphite project which has a proven track record of reliable production and quality. The

project is well managed and located in a historical graphite mining district. This Project offers

the opportunity to implement a significant expansion program that would be supported by the

extent and quality of identified resources in the area, a good transportation infrastructure,

surplus equipment capacity and a significant captive market. This expansion would require a

progressive disbursement for cash expenditures that would include additional mineral-right

acquisitions, incorporation of larger and more efficient mining equipment, including

extraction, transportation, roof support and ventilation units, as well as a significant

expansion of the storage yard, road improvements and increase of manpower. This expansion

will have a major impact on the value of the portfolio.

12. PARTICIPATING ENGINEERS AND GEOLOGISTS STATEMENT

The Independent Technical Consultants hereby certify that it and the staff members who

participated in this assignment have no present or prospective interest in the properties that are the

subject of this Report and have no personal interest or bias with respect to the parties involved. The

Independent Technical Consultants’ compensation is strictly fee-based and has not been rendered on

a commission basis. Furthermore, the Independent Technical Consultants’ compensation is not

contingent on the reporting of a predetermined result or direction in results that favours the cause of

parties associated with developing and using the subject properties.

The analyses, opinions, and conclusions that were developed and are presented in this Report have

been prepared in conformity with internationally accepted engineering and geologic practices.

The Independent Technical Consultants reserves the right to reconsider its opinions and conclusions

upon receipt of any additional information, including clarification of the existing databases.

13. DATA SOURCE AND REFERENCES

. Report of the Reserves of Graphite Ore Resources in Project Dengzhanwo Mining Area, Beihu

District Chenzhou City Hunan Province, Hunan Geological Survey Institute, May 2005;

. Geological Environment Impact Assessment Report of Project Dengzhanwo, Beihu District

Chenzhou City Hunan Province, Hunan Geological Survey Institute, June 2005;


– III-152 –


. Development and Utilisation Plan of Project Dengzhanwo in Beihu District, Chenzhou City,

Chenzhou Coal Mine Design Institute, November 2010;

. Report of Lead Zinc Tin Polymetallic Mineral Resource and Reserve in Project Qingshuijiang

Mining Area, Beihu District, Chenzhou City, Hunan Province, Hunan Geological Survey

Institute, December 2010;

. Development and Utilisation Plan of Project Qingshuijiang Lead Zinc Polymetallic Ore

resources for Project Qingshuijiang, Chenzhou Liansheng survey and Design Co., Ltd., August

2011;

. Geological Environment Impact Assessment Report of Lead Zinc Tin Polymetallic Mine in

Project Qingshuijiang Mining Area (with Mine Geological Environment Protection, Treatment

and Restoration and land Rehabilitation Plan), Hunan Xiangnan Geological Survey Institute,

March 2012;

. Geological Environment Protection,Treatment and Restoration and land Rehabilitation plan of

Project Dishuidai, Hunan Yuanjing Survey and Design Co., Ltd., July 2012;

. Annual Report on Reserves of Project Dengzhanwo, Chenzhou Comprehensive Service Center

for Mineral Development, November 2014;

. Test Report: sample name — graphite — Project Dengzhanwo in Beihu District, submitted by

— The Mining Service Center of Chenzhou Bureau of land and resources, and tested by —

The Experimental Test Branch of Hunan Geological Survey Institute, December 29, 2014;

. Opinions on Annual Report Review of Project Dengzhanwo Reserves in Beihu District,

Chenzhou City, Hunan Province (October 2013 to September 2014), Chen Guotu Zichu

Annual Report Bei Zi (2014) No. 138, Chenzhou City Mineral Resources Reserves Review

Center, January 8, 2015;

. Verification Report on Resource Reserves of Project Dishuidai, Jinjiang Town, Linwu County,

Hunan Province, 311 brigade of Hunan Nuclear Industry Geology Bureau, October 2016;

. Verification Report of Graphite Mineral Resources Reserves at Project Dishuidai, review and

filing of mineral resources reserves, Chenzhou City Land Resources Reserve Zi (2016) No. 05,

Chenzhou City Bureau of land and resources, December 15, 2016;

. Preliminary mine Design Report of Project Dishuidai for Linwu Jinjiangzhen Dishuidai

Graphite Mining Co., Limited, Chenzhou Tiancheng Survey and Design Co., Ltd., December

2016;

. Development and Utilisation Plan of Project Dishuidai Resources Mining, Chenzhou

Tiancheng Survey and Design Co., Ltd., December 2016;


– III-153 –


. Geological Environment Impact Assessment Report of Project Dishuidai (attached: Mine

Geological Environment Protection, Treatment and Restoration and Land Rehabilitation Plan,

Henan Yuanjing Survey and Design Co., Ltd., June 2016;

. Document of Linwu County Water Affairs Bureau: Reply to the ‘‘Report on Water and Soil

Conservation Scheme of Project Dishuidai in Jinjiangzhen, Linwu County, Linshui (2017) No.

205;

. Report on Water and Soil Conservation Scheme of Project Dishuidai in Jinjiangzhen, Linwu

county (approved draft), Hunan Fuyu Langxing Technology Co., Ltd., November 2017;

. Reply of Chenzhou Environmental Protection Bureau on ‘‘The Environmental Impact Report

of Project Dishuidai in Jinjiangzhen, Linwu County, Chenhuan Han [2018] No. 129;

. Project Dishuidai Green Mine Construction Plan, Changsha Safety and Environmental

Technology Consulting Service Co., Ltd., September 2020;

. Initial Capital Investment Requirement, Commencement and Profit Forecast for the

Development of the Three Projects of the Company in Chenzhou, July 2021

. Characteristics of Graphite Mineralisation and Graphite Mineral Deposit Formation Zones in

China, Yan Lingya, et al., Geology of China, June 2018;

. Structural Pattern and Ore Control Mechanism of Coal-Bearing Graphite Mineralisation Zone

in Lutang, Hunan, Wang Lu et al., Coalfield Geology and Exploration, February 2020;

. Invention Patent: Patent Number: CN201362593Y, Title ‘‘Continuous Vertical Medium

Frequency High Temperature and High Purity Graphite Production Equipment, Inventor: Chen

Huaijun, Applicant: Hunan Zhongjia graphite Co., Ltd, Application date: March 13, 2009,

Application publication date: December 16, 2009;

. ‘‘Review of the Progressing of Five Graphite Purification Processes’’, Deng Jiajia Published

on Sharing Posters Electronic Version (on web) No. 4523, March 4, 2018;

. ‘‘Hunan Graphene Industry Base Layout — Chenzhou is to build 100 billion Graphite

Industry’’, Chenzhou Beihu District Government Website Information, Date: October 16,

2016.


– III-154 –


APPENDIX A — COPY OF MINING LICENCES & SAFE PRODUCTION CERTIFICATES

Appendix Fig A-I Photocopy of the Mining Licence and Renewal Statement for Project

Dengzhanwo


– III-155 –


Appendix Fig A-II Photocopy of the Mining Licence for Project Qingshuijiang


– III-156 –


Appendix Fig A-III Photocopy of the Mining Licence for Project Dishuidai

Appendix Fig A-IV Photocopy of the WSP for Project Dishuidai


– III-157 –


Appendix Fig A-V Photocopy of the WSP for Project Qingshuijiang


– III-158 –


APPENDIX B — CHINESE RESOURCE AND RESERVES STANDARDS

Categorisation of Mineral Resources and Ore Reserves

The system for the categorisation of mineral resources and ore reserves in China is in a period oftransition which commenced in 1999. The traditional system, which is derived from the formerSoviet system, uses five categories based on decreasing levels of geological confidence —

Categories A, B, C, D and E. The new system (Rule 66) promulgated by the Ministry of Land andResources (MLR) in 1999 uses three-dimensional matrices, based on economic, feasibility/projectdesign and geological degrees of confidence. These are categorised by a three-number code of theform ‘‘123’’. This new system is derived from the UN Framework Classification proposed forinternational use. All new Projects in China must comply with the new system, however, estimatesand feasibility studies carried out before 1999 will have used the old system.

Definition of the new Chinese resource and reserves category scheme and a general comparisonguide between the Chinese classification scheme and the JORC Code is presented in the followingtables.

Appendix Table B-I General Comparison Guide Between Chinese Classification scheme and theJORC Code

JORC Code ResourceChinese Reserves Category

Previous Current system

Measured A, B 111, 111b, 121, 121b, 2M11, 2M21, 2S11

Indicated C 122, 122b, 2M22, 2S22, 332

Inferred D 333

Non-equivalent E 334

Appendix Table B-II Definition of the New Chinese Resource and Reserves Category Scheme

Category Denoted Comments

Economic

1 Full feasibility study considering economic factors has been conducted

2Pre-feasibility to scoping study which generally considers economic

factors has been conducted

3No pre-feasibility or scoping study conducted to consider economic

analysis

Feasibility

1Further analysis of data collected in ‘‘2’’ by an external technical

department

2More detailed feasibility work including more trenches, tunnels, drilling,

detailed mapping

3 Preliminary evaluation of feasibility with some mapping and trenches

Geologically controlled

1 Strong geological control

2Moderate geological control via closely spaced data points (e.g., small-

scale mapping)

3 Minor work which is projected throughout the area

4 Review stage


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In China, the methods used to estimate the resources and reserves are generally prescribed by the

relevant Government authority and are based on the level of knowledge for that geological style of

deposit. The parameters and computational methods prescribed by the relevant authority include

cut-off grades, minimum thickness of mineralisation, maximum thickness of internal waste, and

average minimum ‘industrial’ or ‘economic’ grades required. The resource classification categories

are assigned largely based on the spacing of sampling, trenching, underground tunnels and drill

holes.

In the pre-1999 system, Category A generally included the highest level of detail possible, such as

grade control information. However, the content of each category B, C and D may vary from

deposit to deposit in China, and therefore must be carefully reviewed before assigning to an

equivalent ‘‘JORC Code type’’ category. The traditional Categories B, C and D are broadly

equivalent to the ‘Measured’, ‘Indicated’, and ‘Inferred’ categories that are provided by the JORC

Code and USBM/USGS systems used widely elsewhere in the world. In the JORC Code system the

‘Measured Resource’ category has the most confidence and the ‘Inferred’ category has the least

confidence, based on the increasing levels of geological knowledge and continuity of

mineralisation.

The new code (see Appendix Fig. B-I) attempts to address this by using a three-component system

(EFG) that considers the deposit economics (E), the level of mining feasibility studies that have

been carried out (F) and the level of geological confidence (G) using a numerical ranking. The New

Chinese Classification comparison to the JORC Classification is detailed in the following table,

Appendix Table B-III.

Appendix Fig B-I New Chinese Resource/Reserves Classification Matrix (1999)

In the new Chinese Category Scheme, as shown in the following table, the three numbers refer to

economic, feasibility/project design and geological degrees of confidence.


– III-160 –


Appendix Table B-III New Chinese Classification Scheme in Comparison to JORC

D E & F

Designedmining lossaccounted

RecoverableReserve

(111)

ProbableRecoverable

Reserve(121)

ProbableRecoverable

Reserve(122)

Designedmining loss

notaccounted

(b)

BasicReserve(111b)

BasicReserve(121b)

BasicReserve(122b)

“F”Feasibility Evaluation

“G”Geological Evaluation

Sub-Economic(2S00)

JORC

Unclassified orExploration Potential

InferredProbable Reserve orIndicated Resource

Proved / ProbableReserve or Measured

Resource

Indicated(002)

Inferred(003)

Predicted(004)

Measured(001)

MarginalEconomic

(2M00)

Resource(334)

Feasibility(010)

Pre-Feasibility

(020)Scoping

(030)

Pre-Feasibility

(020)Scoping

(030)Scoping

(030)Scoping

(030)

Resource(331)

Resource(332)

Resource(333)

IntrinsicallyEconomic (300)

- -

Resource(2S11)

Resource(2S21)

Resource(2S22)

BasicReserve(2M11)

BasicReserve(2M21)

BasicReserve(2M22)

“E”EconomicEvaluation

(100)

Old ChineseClassification A & B C

New Chinese Classification

International Standards and the JORC Code for Resources

Two main styles of resource reporting codes exist internationally. These are the American style

(USA and much of South America) and the JORC style (Australia, South Africa, Canada, and UK).

This is further complicated by the listing and reporting requirements of different stock exchanges. It

is generally true that a resource estimation that complies with the JORC code (or one of its sister

codes) will meet the standards of most international investors.

The new Chinese code is a blend of the old Chinese Code and the codes in current use today,

including JORC and the current United Nations (UN) standard, with some additional local

components added. JORC is a non-prescriptive code, in that it does not lay out specific limits for

resource classification in terms of such things as borehole spacing. Instead, it emphasizes the

principles of transparency, materiality and the role of the Independent Technical Consultants.

Whilst some guidelines do exist (e.g., the Australian Guidelines for the Estimation of Coal

Resources and Reserves) they are not mandatory, and classification is left in the hands of the

Independent Technical Consultants. When combined with its Professional Standards (which are

effectively mandatory), the Chinese code is much more prescriptive but does not include the role of

the Independent Technical Consultants.


– III-161 –


An examination of the details of the Chinese code suggests that in terms of broad categorisation,

the levels of geological confidence ascribed to Measured and Indicated resources are quite similar

in both the codes. The ranges of borehole spacings, thickness cut-offs and quality limitations that

are enforced by the Chinese system would generally result in the same resource classification under

the JORC Code.

The JORC Code uses the following definitions for Mineral Resources and Ore Reserves:

Measured Mineral Resource is that part of Mineral Resource for which tonnage, densities, shape,

physical characteristics, grade, and mineral content can be estimated with a high level of

confidence. It is based on detailed and reliable exploration, sampling and testing information

gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings,

and drill holes. The locations are spaced closely enough to confirm geological and grade continuity.

Indicated Mineral Resource is that part of Mineral Resource for which tonnage, densities, shape,

physical characteristics, grade, and mineral content can be estimated with a reasonable level of

confidence. It is based on detailed and reliable exploration, sampling and testing information

gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings,

and drill holes. The locations are too widely or inappropriately spaced to confirm geological and/or

grade continuity but are spaced closely enough for continuity to be assumed.

Inferred Mineral Resource is that part of Mineral Resource for which tonnage, densities, shape,

physical characteristics, grade, and mineral content can be estimated with a low level of confidence.

It is inferred from geological evidence and assumed but not verified geological and/or grade

continuity. It is based on information gathered through appropriate techniques from locations such

as outcrops, trenches, pits, workings, and drill holes which may be limited or of uncertain quality

and reliability.

Exploration Target/Results includes data and information generated by exploration programs that

may be of use to investors. The reporting of such information is common in the early stages of

exploration and is usually based on limited surface chip sampling, geochemical and geophysical

surveys. Discussion of target size and type must be expressed so that it cannot be misrepresented as

an estimate of Mineral Resources or Ore Reserves.

A ‘‘Proved Ore Reserves’’ is the economically mineable part of a Measured Mineral Resource. It

includes diluting materials and allowances for losses which may occur when the material is mined.

Appropriate assessments and studies have been carried out and include consideration of and

modification by realistically assumed mining, metallurgical, economic, marketing, legal,

environmental, social, and governmental factors. These assessments demonstrate at the time of

Reporting that extraction could reasonably be justified. A Proved Ore Reserves represents the

highest confidence category of Ore Reserves estimates. This requires detailed exploration and

quality data — points of observation to provide high geological confidence.


– III-162 –


A ‘‘Probable Ore Reserves’’ is the economically mineable part of an Indicated, and in some

circumstances, a Measured Mineral Resource. It includes diluting materials and allowances for

losses which may occur when the material is mined. Appropriate assessments and studies have been

carried out and include consideration of and modification by realistically assumed mining,

metallurgical, economic, marketing, legal, environmental, social, and governmental factors These

assessments demonstrate at the time of reporting that extraction could reasonably be justified. A

Probable Ore Reserves has a lower level of confidence than a Proved Ore Reserves but has

adequate reliability as the basis of mining studies. https://www.msn.cn/zh-cn/feed

APPENDIX C — CHINESE ENVIRONMENTAL LEGISLATIVE BACKGROUND

The Mineral Resources Law of the People’s Republic of China (Amended in 2009), Rules for

Implementation of the Mineral Resources Law of the People’s Republic of China (1994) and

Environmental Protection Law of the People’s Republic of China (Amended in 2014) provide the

main legislative framework for the regulation and administration of mining projects within China.

The Environmental Protection Law of the People’s Republic of China (Amended in 2014) provides

the main legislative framework for the regulation and administration of mining projects

environmental impacts.

The following articles of the Mineral Resources Law of the People’s Republic of China

(Amended in 2009) summarise the specific provisions in relation to environmental protection.

Article 15 Qualification & Approval

Anyone who wishes to establish a mining enterprise must meet the qualifications prescribed by the

State, and the department in charge of examination and approval shall, in accordance with law and

relevant State regulations, examine the enterprise’s mining area, its mining design or mining plan,

production and technological conditions and safety and environmental protection measures. Only

those that pass the examination shall be granted approval.

Article 21 Closure Requirements

If a mine is to be closed down, a report must be prepared with information about the mining

operations, hidden dangers, land reclamation and utilisation, and environmental protection, and an

application for examination and approval must be filed in accordance with relevant State

regulations.

Article 32 Environmental Protection Obligations of Mining Licence Holders

In mining mineral resources, a mining enterprise must observe the legal provisions on

environmental protection to prevent pollution of the environment. In mining mineral resources,

land must be used economically. In case that cultivated land, grassland or forest land is damaged

due to mining, the mining enterprise concerned shall take measures to restore the land affected,


– III-163 –


such as by reclamation, tree and grass planting or other measures to make the damaged land

useable. Anyone who, in mining mineral resources, causes losses to the production and livelihood

of other persons shall be liable for compensation and shall adopt necessary remedial measures.

The following articles of the Environmental Protection Law of the People’s Republic of China

(Amended in 2014) summarise the specific provisions for environmental protection in relation to

mining.

Article 19 Environmental Impact Assessment

Environmental impact assessment shall be carried out pursuant to the law in the formulation of the

relevant development and utilisation plans and construction of projects which have an impact on

environment. Development and utilisation plans which have not carried out environmental impact

assessment pursuant to the law shall not be organised and implemented; construction projects which

have not carried out environmental impact assessment shall not commence construction.

Article 41 Pollution Prevention Facilities

Pollution prevention facilities in construction projects shall be designed, constructed and put into

use simultaneously with the main project. Pollution prevention facilities shall comply with the

requirements of the approved environmental impact assessment document, and shall not be

arbitrarily removed or left idle.

Article 59 Violation Consequences

Enterprises, institutions and other manufacturing operation guilty of illegal discharge of pollutants

shall be subject to a fine and ordered to make correction; where an offender refuses to make

correction, the administrative authorities which made the punishment decision pursuant to the law

may, with effect from the date of order for correction, impose consecutive daily fines based on the

original punishment amount. The fines stipulated in the proceeding paragraph shall comply with the

provisions determined in accordance with the factors such as operation costs of pollution prevent

facilities, direct losses caused by the illegal actor and illegal income derived from the illegal act

etc. Local regulations may, in accordance with the actual need of environmental protection, include

additional types of illegal acts for which daily consecutive fines stipulated in the first paragraph are

applicable.

The following articles of the Regulations on the Administration of Construction Project

Environmental Protection (Amended in 2017) summarise the specific provisions for undertaking

a project’s Final Checking and Acceptance process.

Article 17 — Upon completion of construction of a construction project for which an

environmental impact report or environment impact statement is formulated, the builder shall

conduct acceptance inspection of the complementary environmental protection facilities pursuant to

the standards and procedures stipulated by the environmental protection administrative authorities

of the State Council, and formulate the acceptance inspection report. The builder shall, in the


– III-164 –


acceptance inspection process of the environment protection facilities, inspect, monitor and record

the construction and testing status of the construction project’s environmental protection facilities

truthfully, and shall not commit any fraud. Except for circumstances when there is a need to keep

confidentiality pursuant to the provision of the state, the builder shall announce the acceptance

inspection report pursuant to the Law.

Article 18 — For construction projects that are built in phases, go into production or are delivered

for use in phases, acceptance checks for their corresponding environmental protection facilities

should be conducted in phases.

Article 20 — The environmental protection administrative authorities shall supervise and inspect

the status of design, construction, acceptance inspection and putting into production or use of a

construction project’s environmental protection facilities, as well as implementation of other

environmental protection measures determined in the relevant environmental impact assessment

document. The environmental protection administrative authorities shall record the relevant

information of environment violations by construction projects into the social creditworthiness

files, and promptly announce the list of offenders to the public.

The following article of the Water & Soil Conservancy Law of the People’s Republic of China

(Amended in 2010) summarises the provisions for the preparation and approval of Water and Soil

Conservation Plans.

Article 15 — For any plan on infrastructure construction, exploitation of mineral resources, urban

construction or construction of public science facilities that may cause soil erosion during its

implementation, the formulating agency shall include preventive and rehabilitative strategies and

measures in the plan, and consult with the water administrative department of the people’s

government at the corresponding level prior to submitting it for approval.

The following are other Chinese laws that provide environmental legislative support to the

Minerals Resources Law of the People’s Republic of China (Amended in 2009) and the

Environmental Protection Law of the People’s Republic of China (Amended in 2014):

— Environmental Impact Assessment (EIA) Law of the People’s Republic of China (Amended in

2018);

— Law of the People’s Republic of China on Prevention & Control of Atmospheric Pollution

(Amended in 2018);

— Law of the People’s Republic of China on Prevention & Control of Noise Pollution (Amended

in 2018);

— Law of the People’s Republic of China on Prevention & Control of Water Pollution (Amended

in 2017);

— Law of the People’s Republic of China on Prevention & Control Environmental Pollution by

Solid Waste (revised 2020);


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— Law of the People’s Republic of China on the Forestry Law (revised 2019);

— Law of the People’s Republic of China on Water Law (revised 2016);

— Law of the People’s Republic of China on Water Conservancy Industrial Policy (1997);

— Law of the People’s Republic of China on Land Administration Law (2019);

— Law of the People’s Republic of China on Protection of Wildlife Law (1989);

— Law of the People’s Republic of China on Energy Conservation Law (2018);

— Law of the People’s Republic of China on Electric Power Law (2018);

— Regulation on prevention and control of tailings pollution (1999);

— Management Regulations of Dangerous Chemical Materials (2013).

The relevant environmental protection related Chinese legislation that are required to be utilised for

project’s design are a combination of the following National design regulations and emissions

standards:

— Regulations on the Administration of Construction Project Environmental Protection (2017);

— Regulations for Quality Control of Construction Projects (2019);

— Regulations on Nature Reserves (2017);

— Regulations on Management of Chemicals Subject to Supervision & Control (2011);

— Environment Protection Design Regulations of Metallurgical Industry (YB9066-55);

— Comprehensive Emission Standard of Wastewater (GB8978-1996);

— Environmental Quality Standard for Surface Water (GB3838-2002);

— Environmental Quality Standard for Groundwater (GB/T14848-1993);

— Ambient Air Quality Standard (GB3095-2012);

— Comprehensive Emission Standard of Atmospheric Pollutants (GB16297-1996);

— Emission Standard of Atmospheric Pollutants from Industrial Kiln (GB9078-1996);

— Emission Standard of Atmospheric Pollutants from Boiler (GB13271-2014)-II-stage coal-fired

boiler;

— Environmental Quality Standard for Soils (GB15618-1995);


– III-166 –


— Standard of Boundary Noise of Industrial Enterprise (GB12348-90);

— Emissions Standard for Pollution from Heavy Industry; Non-Ferrous Metals (GB4913-1985);

— Control Standard on PCBs for Wastes (GB13015-2017);

— Control Standard on Cyanide for Waste Slugs (GB12502-1990);

— Standard for Pollution Control on Hazardous Waste Storage (GB18597-2001);

— Identification Standard for Hazardous Wastes-Identification for Extraction Procedure Toxicity

(GB5085.3-2007);

— Standard of Landfill and Pollution Control of Hazardous Waste (GB 18598-2019)

APPENDIX D — EQUATOR PRINCIPLES AND INTERNATIONALLY RECOGNISED

ENVIRONMENTAL MANAGEMENT PRACTICES

In seeking to obtain project financing or to list on a stock exchange, these institutions themselves

require the proponent to comply with such documents as the Equator Principles and the IFC

Performance Standards and Guidelines. This is exemplified by the following preamble from the

Equator Principles (July 2006).

Project financing, a method of funding in which the lender looks primarily to the revenues

generated by a single project both as the source of repayment and as security for the exposure,

plays an important role in financing development throughout the world. Project financiers may

encounter social and environmental issues that are both complex and challenging, particularly with

respect to Projects in the emerging markets.

The Equator Principles Financial Institutions (EPFIs) have consequently adopted these Principles to

ensure that the Projects the Company finance are developed in a manner that is socially responsible

and reflect sound environmental management practices. By doing so, negative impacts on project-

affected ecosystems and communities should be avoided where possible, and if these impacts are

unavoidable, they should be reduced, mitigated and/or compensated for appropriately. The

Company believe that adoption of and adherence to these Principles offers significant benefits to

the Company, the Company borrowers and local stakeholders through the Company borrowers’

engagement with locally affected communities. The Company therefore recognise that its role as

financiers affords the opportunities to promote responsible environmental stewardship and socially

responsible development. As such, EPFIs will consider reviewing these Principles from time-to-time

based on implementation experience, and to reflect ongoing learning and emerging good practice.

These Principles are intended to serve as a common baseline and framework for the implementation

by each EPFI of its own internal social and environmental policies, procedures and standards

related to its project financing activities. The Company will not provide loans to Projects where the

borrower will not or is unable to comply with its respective social and environmental policies and

procedures that implement the Equator Principles.


– III-167 –


The following tables Appendix Table D-I and Appendix Table D-II provide a brief summary of

the Equator Principles and IFC performance standards respectively. These documents are used by

the EPFI’s and stock exchanges in their review of social and environmental performance of

proponent companies.

Appendix Table D-I Brief summary of the Equator Principles

EquatorPrinciples Title Key Aspects (Summary)

1 Review andCategorisation

Categorise such Projects based on the magnitude of its potential impacts and risks.

2 Social andEnvironmentalAssessment

Conduct a Social and Environmental Assessment (‘‘Assessment’’). The Assessmentshould also propose mitigation and management measures appropriate to the natureand scale of the proposed project.

3 Applicable Social &Environmental

Standards

The Assessment will refer to the applicable IFC Performance Standards, andapplicable Industry Specific EHS Guidelines (‘‘EHS Guidelines’’) and overallcompliance with same.

4 Action Plan &Management System

Prepare an Action Plan (AP) which addresses relevant findings of the Assessment.The AP will describe and prioritise actions, mitigation measures, corrective actionsand monitoring to manage impacts and risks identified in the Assessment.Maintain a Social and Environmental Management System that addressesmanagement of these impacts, risks, and corrective actions required to complywith host country laws and regulations, and requirements of the applicableStandards and Guidelines, as defined in the AP.

5 Consultation &Disclosure

Consult with project affected communities. Adequately incorporate affectedcommunities’ concerns.

6 Grievance Mechanism Establish a grievance mechanism as part of the management system to receive andresolve concerns about the project by individuals or groups from among project-affected communities. Inform affected communities about the grievancemechanism during the community engagement process and ensure that themechanism addresses concern promptly, transparently and is readily accessible toall segments of the affected communities.

7 Independent Review Independent social or environmental expert will review the Assessment, AP andconsultation process to assess Equator Principles compliance.

8 Covenants Covenant in financing documentation:

a) to comply with all relevant host country social and environmental laws,regulations and permits;b) to comply with the AP during the construction and operation of the project;c) to provide periodic reports not less than annually, prepared by in-house staff orthird party experts, that (i) document compliance with the AP, and (ii) providecompliance with relevant local, state and host country social and environmentallaws, regulations and permits; andd) decommission facilities, where applicable and appropriate, in accordance withan agreed decommissioning plan.

9 IndependentMonitoring and

Reporting

Appoint an independent environmental and/or social expert or require that theborrower retain qualified and experienced external experts to verify its monitoringinformation.

10 EPFI Reporting Each EPFI adopting the Equator Principles commits to report publicly at leastannually about its Equator Principles implementation processes and experience,considering appropriate confidentiality considerations.


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Appendix Table D-II IFC Performance Standards

IFCPerformanceStandard Title Objective (Summary) Key Aspects (Summary)

1 Social,

Environmental

Assessment &

Management

Systems

Social and EIA and

improved performance

through use of

management systems

Social & Environmental Management System

(S&EMS). Social & Environmental Impact Assessment

(S&EIA). Risks and impacts. Management Plans.

Monitoring. Reporting. Training. Community

Consultation.

2 Labour and

Working

Conditions

EEO. Safety and

health

Implement through the S&EMS. HR policy. Working

conditions. EEO. Forced and child labour. OH&S.

3 Pollution

Prevention and

Abatement

Avoid pollution.

Reduce emissions

Prevent pollution. Conserve resources. Energy

efficiency. Reduce waste. Hazardous materials. EPR.

Greenhouse.

4 Community Health,

Safety and Security

Avoid or minimise

risks to community

Implement through the S&EMS. Do risk assessment.

Hazardous materials safety. Community exposure.

ERP.

5 Land Acquisition

and Involuntary

Resettlement

Avoid or minimise

resettlement. Mitigate

adverse social impacts

Implement through the S&EMS. Consultation.

Compensation. Resettlement planning. Economic

displacement.

6 Biodiversity

Conservation &

Sustainable Natural

Resource

Management

Protect and conserve

biodiversity

Implement through the S&EMS. Assessment. Habitat.

Protected areas. Invasive species.

7 Indigenous Peoples Respect. Avoid and

minimise impacts.

Foster good faith

Avoid adverse impacts. Consultation. Development

benefits. Impacts to traditional land use. Relocation.

8 Cultural Heritage Protect cultural

heritage

Heritage survey. Site avoidances. Consultation.


– III-169 –


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