SUMMARY - : HKEX :: HKEXnews
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN
CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
This summary aims to give you an overview of the information contained in this document.
As the following is only a summary, it does not contain all the information that may be
important to you. You should read the whole document in its entirety before you decide to invest
in the [REDACTED]. There are risks associated with any investment. Some of the particular
risks in investing in the [REDACTED] are set out in the section headed “Risk factors” in this
document. You should read that section carefully before you decide to invest in the
[REDACTED]. Various expressions used in this summary are defined in the section headed
“Definitions” in this document.
OVERVIEW
We are a developing mining company at the mine site infrastructure development and mine
construction preparation stage. According to the F&S Report, our YQS Nanshan Project held the
largest amount of exploitable rough peridot as of December 31, 2020 among those identified by
Frost & Sullivan internationally based on its independent research. Peridot is one of the oldest
gemstones in the world with a 3,500-year history. It is the birth stone for the month of August and
has always been associated with an emotive message of light. According to the Competent
Person’s Report, peridot is the specific name given to gem-quality olivine. Nearly all of the olivine
contained in our YQS Nanshan Project is peridot. Peridot’s color ranges from pure green to
yellowish green, and greenish yellow and further to brownish green, and to brown. Peridot is a
transparent gemstone and is one of the few gemstones generally available in the market that are
natural and untreated. Our gem-grade peridot can be classified into (i) peridot gemstones, which
are transparent olivine that is anticipated to produce cut-and-polished peridot of no less than 3mm;
and (ii) gem-grade peridot sands which are transparent olivine that is anticipated to produce
peridot gem dots of less than 3mm.
We strive to become a mining company with a mine-to-market business model encompassing
mining operations, our own ore and gemstone processing capacities, in-house marketing abilities,
as well as sales channels with extensive coverage of the gemstone value chain. We aim to become
the leading global producer and supplier of quality peridot gemstones, and to build one of the most
innovative, creative, and environmentally responsible gemstone mining companies in the world. To
achieve our goal, we have devised a comprehensive commercialization scheme. See “Path to
Commercialization” in this document for details.
Our YQS Nanshan Project is located in Emu Town, Dunhua City, Jilin Province, China and is
approximately 50km northwest of downtown Dunhua City. The mine site is accessible through
daily domestic flights to Changchun, followed by around four hours of traveling by road. The
region surrounding our YQS Nanshan Project consists of low-to medium-relief terrain and hilly
areas. Elevation ranges from 420m to 750m above sea level with steep slopes and deep valleys.
The Zhuerduo River (珠爾多河) is the main watercourse in the region flowing from west to east in
the northern part of the project area, and then flowing southward into the Mudan River (牡丹江) to
the east of our YQS Nanshan Project.
In accordance with our commercialization scheme, we expect to complete our overall mine
construction by the third quarter of 2023 and to commence commercial production in the fourth
quarter of 2023. See “— Our Commercialization Roadmap” below. We expect that upon
commercial production, our YQS Nanshan Project will produce three principal products, namely
cut-and-polished peridot gemstones, peridot gem dots and rough peridot gemstones; and two
by-products, namely industrial-grade peridot sands and basalt.
Taking into consideration the ecosystem of the gemstone industry value chain and leveraging
our “mine-to-market” business model, we have identified three major sales channels aside from
direct sales to brands, designers, and jewelry and accessories manufacturers, namely (i)
international and regional trade shows; (ii) e-commerce channels; and (iii) auction channels. We
believe that these channels are effective and complementary to our initiatives in directly
–1–THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN
CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
approaching our target customer groups. We have accordingly devised development strategies for
each of these channels. See “Path to Commercialization — Sales Channel Development” in this
document for details.
OUR BUSINESS MODEL
We strive to become the go-to supplier for peridot gemstones in the international gemstone
and jewelry industry. We intend to adopt a mine-to-market business model which encompasses: (i)
peridot mining at our YQS Nanshan Project; (ii) processing of the peridot ores mined from our
YQS Nanshan Project into rough peridot and cut-and-polished peridot; and (iii) marketing and
sales of our peridot products. We believe the mine-to-market business model will facilitate the
offering of traceability for our peridot gemstones, enforce unified brand positioning strategies and
more effectively internalize profit margin by eliminating intermediaries. On the other hand, our
intended offering of multiple principal products and by-products enables us to adjust our product
mix based on market demand trends we observe.
The diagram below sets forth an illustration of our business model:
Mine
Peridot
Ores
Basalt
Sales
Ore processing Industrial-grade
facilities Peridot Sands
Rough Peridot
Gemstones
Demand
Supply
Gemstone processing Sales
facilities
Cut-and-polished Peridot Gem Dots
Peridot Gemstones
Sales
Note: Images above are for illustration purpose only.
OUR MINERAL RESOURCES AND MINING RIGHTS
Our Peridot Resources and Reserves
Resources
The following table sets forth the estimated Resources of our YQS Nanshan Project under the
JORC Code as of December 31, 2020, as extracted from the Competent Person’s Report:
Grade
Estimated
Category Resources Peridot gemstone Peridot sand
(carat(s) per
(million tonnes) tonne) %
Indicated . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 236 16.6
Inferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 210 16.1
Note: Cut-off grade for peridot gemstone is 20 carats per tonne.
–2–THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN
CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
Reserves
The following table sets forth the Probable Ore Reserves of our YQS Nanshan Project under
the JORC Code by product type as of December 31, 2020, as extracted from the Competent
Person’s Report:
Probable Ore Reserves Peridot gemstone grade Peridot sand grade
(million tonnes) (carats per tonne) %
5.19 204.11 15.80
Mining License
The following table sets forth the material information of our Mining License:
Approved Mining
License holder Validity production volume Licensed Area Resource type
Yanbian Fuli December 8, 2016 to 300,000 tonnes per 1.6731 km2 GemstonesNote
December 8, 2026 annum
Note: The mine site is known as Dunhua City Yiqisong Nanshan Peridot Mine* (敦化市意氣松南山橄欖石寶石礦).
During the Track Record Period and as of the Latest Practicable Date, we did not pledge our
mining rights under our Mining License to secure any of our borrowings. See “Business —
Licenses and Permits — Mining License” in this document for further details.
OUR STRENGTHS
We believe that the following competitive strengths distinguish us from our competitors in
the colored gemstone mining industry: (i) large probable reserve of peridot allowing for stable
supply of peridot gemstones to capture market shares in China and globally; (ii) advantageous
project location coupled with the nature of our deposit, enabling a high-yielding mining operation;
(iii) a mine-to-market business model with integrated operations allowing us to enhance our profit
margin, enforce a unified branding and offer traceability which is highly valued in the gemstone
industry; (iv) early success in establishing a network of key supply chain players; (v) seasoned and
experienced management team covering all aspects of our mine-to-market business model; and (vi)
a balanced product mix that is adaptable to various market conditions. See “Business — Our
Strengths” in this document for details.
OUR STRATEGIES
Our mission is to become the leading global producer and supplier of quality peridot
gemstones. To this end, we have formulated the following strategies: (i) complete the development
of our YQS Nanshan Project and bring it to production and commercialization; (ii) systematically
execute our global marketing strategies; and (iii) develop our sales channels and sales capability.
See “Business — Our Strategies” in this document for details.
OUR COMMERCIALIZATION ROADMAP
In accordance with our commercialization scheme, our YQS Nanshan Project will have a
life-of-mine of approximately 21 years. Our overall mine construction is expected to commence in
the third quarter of 2021 and last around two years. Our mine production schedule is devised
primarily with reference to our sales plan, commencing commercial production in the fourth
quarter of 2023 with a relatively conservative ramp-up period of approximately six years to allow
for gradual market developments in conjunction with our marketing, promotion and consumer
education initiatives.
–3–THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN
CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
According to our commercialization timeline, we expect to reach full capacity production in
2030, and after that running at full production capacity up to 2041 with a final production
ramp-down from 2042 till 2044. See “Path to Commercialization — Our Commercialization
Roadmap — Production” for details.
Based on our overall mine site construction plan, we have divided our construction work into
three sections, namely (i) above-the-ground facilities construction; (ii) underground facilities and
mine construction; and (iii) ore processing facilities construction. We plan to build an onsite ore
processing facilities to process the peridot ores mined from our YQS Nanshan Project into rough
peridot gemstones, rough peridot sands and basalt. To align with the expected annual mine
production volume upon full capacity production, the ore processing facilities are also planned to
have a designed annual processing capacity of 300,000 tonnes of peridot ores. Construction of the
ore processing facilities is currently scheduled to complete in 2023, before our scheduled
commercial production. See “Business — Our YQS Nanshan Project — Mine Site” in this
document for details.
In order to better prioritize our resource allocation and deployment, we plan to engage
third-party gemstone processing subcontractors to process our gem-grade rough peridot into
cut-and-polished peridot gemstones and peridot gem dots during the production ramp-up period.
See “Business — Subcontractors” in this document for details. In the longer run, however, we plan
to establish our own gemstone processing capability by constructing our own gemstone processing
facilities, currently intended to be located in Dunhua City where our operating center is also
located. See “Business — Our YQS Nanshan Project — Gemstone Processing Facilities and
Construction” in this document for details.
CAPITAL AND OPERATING EXPENDITURE
On the basis of a maximum annual production capacity of 300,000 tonnes of peridot ore and
a life-of-mine of approximately 21 years, the total capital expenditure required for the
development and operation of our YQS Nanshan Project is projected to amount to RMB289.6
million, according to the Competent Person’s Report. The projected total capital expenditure
includes (i) approximately RMB70.6 million of marketing expenditure projected to be incurred
prior to commencement of our commercial production; (ii) approximately RMB157.5 million as
initial capital expenditure for construction of our mine site, our onsite ore processing facilities as
well as general layout engineering; (iii) approximately RMB35.1 million as additional capital
expenditure for the construction of our gemstone processing facilities; and (iv) approximately
RMB26.3 million as a general buffer of around 10% on top of the above projected capital
expenditure. As of December 31, 2020, we had invested approximately RMB30.7 million in our
YQS Nanshan Project, according to the Competent Person’s Report.
–4–THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN
CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
The following table sets forth a breakdown of the projected initial capital expenditure by
category for the periods indicated as shown in the Competent Person’s Report:
Cost (RMB’000)
Item Mining Construction Equipment Installation Other Total
Engineering
— Mine . . . . . . . . . . . . . . . . 43,455 26,733 28,792 2,057 — 101,037
— Ore processing facilities . . — 5,532 7,475 846 — 13,853
— General layout engineering . — 20,238 1,260 — — 21,498
— Others . . . . . . . . . . . . . . . — — — — 21,130 21,130
Marketing expenditure . . . . . . — — — — 70,568 70,568
Contingency fee (10%) . . . . . . 4,346 5,250 3,753 290 9,170 22,809
Total initial capital
expenditure . . . . . . . . . . . . 47,801 57,753 41,279 3,194 100,868 250,894
The following table sets forth a breakdown of the projected additional capital expenditure for
the development of our gemstone processing facilities by category as shown in the Competent
Person’s Report:
Cost (RMB’000)
Item Construction Equipment Installation Other Total
Construction . . . . . . . . . . . . . . . . . . . . . . 20,524 — — — 20,524
Gemstone processing equipment . . . . . . . . — 9,140 517 — 9,657
Public and supportive facilities . . . . . . . . . 1,091 — — — 1,091
Land use right . . . . . . . . . . . . . . . . . . . . — — — 3,877 3,877
Contingency fee (10%). . . . . . . . . . . . . . . 2,161 914 52 388 3,515
Total sustaining capital expenditure . . . . 23,776 10,054 569 4,265 38,664
The following table sets forth a breakdown of the projected operating expenditure by
category, as shown in the Competent Person’s Report:
Cost item Amount Unit
Mining and ore processing
— Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 RMB per tonne of ore
— Power and water. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 RMB per tonne of ore
— Salary and welfare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 RMB per tonne of ore
— Manufactory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 RMB per tonne of ore
— General and Administrative . . . . . . . . . . . . . . . . . . . . . . . . 422 RMB per tonne of ore
Gemstone processing
Outsourced processing (2023-2029)
— Hand-cut processing (above 7mm) . . . . . . . . . . . . . . .... 65 RMB per carat
— Machine processing for small gem (above 3 to 7mm) .... 20 RMB per carat
— Machine processing for peridot gem dot (1 to 3mm) . .... 20 RMB per carat
Gemstone processing facilities (2030-)
— Hand-cut processing (above 7mm) . . . . . . . . . . . . . . . . . . 46 RMB per carat
Machine processing for small gem (above 3 to 7mm) . . . . . . 14 RMB per carat
Machine processing for peridot gem dot (1 to 3mm) . . . . . . . 14 RMB per carat
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,449 RMB per tonne of ore
Our Directors expect that the [REDACTED] from the [REDACTED] will be sufficient to
bring our YQS Nanshan Project to commercialization.
–5–THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN
CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
OUR PRODUCTION AND PROCESSING
We will use the underground cut-and-fill, regular room and pillar, as well as random pillar
open stoping mining methods to carry out mining at our YQS Nanshan Project site. Our mining
processes comprise mainly drilling and blasting, ventilation, shoveling and loading, as well as
onsite transportation of ores. We plan to complete construction of our onsite ore processing
facilities concurrent with our mine construction to process the peridot ores mined from our YQS
Nanshan Project into rough peridot gemstones, peridot sands and basalt. The typical processing
steps involved in our ore processing operations include sorting, crushing and screening of the
peridot ore. In our peridot gemstone processing facilities, the rough peridot processed in our ore
processing facilities will be further processed, either by hand or machine, primarily into various
sizes of cut-and-polished peridot products. For further details, see “Business — Our Production
and Processing” in this document.
MARKETING AND SALES
During the Track Record Period and up to the Latest Practicable Date, we embarked on a
series of brand awareness initiatives, such as distributing information about our peridot and our
brand to our supply chain and end-markets to build market traction for our peridot ahead of our
commercial production. We have established collaborative relationships with Liv Luttrell, Zeemou
Zeng Limited, Annoushka Ltd and Stephen Webster Limited, all internationally well-known
designers or jewelry companies carrying fine jewelry products designed by their respective
founders, about creating customized jewelry pieces using our peridot. We have also entered into
non-binding memoranda of understanding with most of these collaborative partners and other
jewelry and watch companies to use our peridot in their jewelry collections and pieces and the
global marketing and promotion of our peridot in 2021. See “Recent Developments and No
Material Adverse Change — Recent Developments” below for details.
CUSTOMERS
Upon commencement of commercial production, we expect that our target customers will
include jewelry, fashion and accessories brands, designers and manufacturers, gemstone dealers, as
well as end-consumers. As part of our pre-market sounding-out initiatives, we sold limited
amounts of rough peridot, cut-and-polished peridot and jewelry during the Track Record Period,
which were produced using peridot collected during our exploration stage, and generated revenue
of RMB1.1 million, RMB1.2 million, and RMB707,000 for the years ended December 31, 2018,
2019 and 2020, respectively. These sales were generally made to retail customers during trade
shows or through our three retail showrooms located in our Dunhua operating center, the Yanji
airport and the Changbaishan tourism area, or to our employees, management and minority
shareholders, their friends and families, and related companies. We generally did not provide credit
terms for these sales. None of our Directors, their respective associates or any of our Shareholders
owning more than 5% of the share capital of our Company was related to, or owned any interest
in, any of our top five customers during the Track Record Period. For the three years ended
December 31, 2018, 2019 and 2020, revenue generated from our top five customers amounted to
RMB627,000, RMB353,000 and RMB200,000 for the corresponding periods, representing 55.8%,
30.6%, and 28.3% of our total revenue, respectively, while revenue from the largest customer
amounted to RMB427,000, RMB269,000, and RMB111,000, representing 38.0%, 23.3%, and
15.7% respectively, of our total revenue for the corresponding periods. See “Business —
Marketing and Sales — Customers” in this document for details.
–6–THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN
CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
SUPPLIERS
Given the stage of development of our project, during the Track Record Period our suppliers
were primarily either (i) capital expenditure related, whom we procured mine and infrastructure
construction related materials, equipment and services from; (ii) or production related, whom we
procured gemstone processing services, materials and consumables in the course of producing our
gemstone products that were showcased in various trade shows and our showrooms or sold, as the
case may be. For the three years ended December 31, 2018, 2019 and 2020, purchases from our
top five suppliers were RMB5.0 million, RMB9.9 million and RMB5.7 million, representing
83.7%, 78.4% and 71.6%, of our total purchases, respectively, and purchases from our largest
supplier were RMB3.5 million, RMB8.2 million and RMB1.8 million, respectively, representing
59.0%, 65.1% and 23.1%, of our total purchases, respectively. All of our top five suppliers during
the Track Record Period are Independent Third Parties. None of our Directors, their associates or
our current Shareholders (who, to the knowledge of our Directors, owns more than 5% of share
capital of our Company) has any interest in any of our top five suppliers during the Track Record
Period. See “Business — Suppliers” for details.
SUBCONTRACTORS
During the Track Record Period, we outsourced some of our gemstone processing and all
jewelry fabrication work to subcontractors who were Independent Third Parties. During the Track
Record Period, we engaged a total of ten subcontractors, all of which were Independent Third
Parties, to carry out gemstone processing and jewelry fabrication and the total subcontracting
charges incurred were RMB0.6 million, RMB0.7 million and RMB0.6 million during the three
years ended December 31, 2018, 2019 and 2020, respectively.
With a view to better prioritizing our resource allocation and deployment during our initial
years of the production ramp-up period, we plan to engage third-party gemstone processing
subcontractors to process our gem-grade rough peridot into cut-and-polished peridot gemstones
and peridot gem dots before we develop our own gemstone processing facilities. See “Business —
Subcontractors” in this document for details.
SUMMARY OF HISTORICAL FINANCIAL INFORMATION
The following tables set out our summary consolidated financial information as at and for the
three years ended December 31, 2018, 2019 and 2020. You should read this summary together with
the consolidated financial information set forth in the Accountants’ Report of our Group in
Appendix I to this document, including the related notes, as well as the information set forth in the
“Financial Information” section in this document.
–7–THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN
CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
Summary Consolidated Statements of Profit or Loss Data
The table below sets forth a summary of our consolidated statements of profit or loss for the
periods indicated:
Year ended December 31,
2018 2019 2020
RMB’000 RMB’000 RMB’000
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,123 1,154 707
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . (341) (378) (274)
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . 782 776 433
Selling and distribution expenses . . . . . . . . (4,004) (6,419) (7,523)
Administrative expenses . . . . . . . . . . . . . . . (9,814) (12,932) (18,098)
Loss before tax . . . . . . . . . . . . . . . . . . . . . . (13,058) (18,608) (25,899)
Income tax credit . . . . . . . . . . . . . . . . . . . . 2,208 1,497 1,755
Loss for the year . . . . . . . . . . . . . . . . . . . . . (10,850) (17,111) (24,144)
Summary Consolidated Statements of Financial Position Items
The table below sets forth a summary of our consolidated statements of financial position as
of the dates indicated:
As of December 31,
2018 2019 2020
RMB’000 RMB’000 RMB’000
Total non-current assets. . . . . . . . . . . . . . . . 28,393 41,504 54,645
Total current assets . . . . . . . . . . . . . . . . . . . 9,390 43,749 43,701
Total current liabilities . . . . . . . . . . . . . . . . 18,635 71,094 32,610
Net current assets/(liabilities) . . . . . . . . . . . (9,245) (27,345) 11,091
Total assets less current liabilities . . . . . . . . 19,148 14,159 65,736
Total non-current liabilities . . . . . . . . . . . . . 2,960 11,394 1,931
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . 16,188 2,765 63,805
Non-controlling interests . . . . . . . . . . . . . . . — — 3,885
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . 16,188 2,765 63,805
–8–THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN
CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
Summary Consolidated Statements of Cash Flows
The table below sets forth a summary of our consolidated statements of cash flows for the
years indicated:
Year ended December 31,
2018 2019 2020
RMB’000 RMB’000 RMB’000
Net cash used in operating activities . . . . . . (7,001) (14,789) (28,799)
Net cash flows from/(used in) investing
activities . . . . . . . . . . . . . . . . . . . . . . . . . 2,484 (10,170) (32,258)
Net cash flows from financing activities . . . 5,230 24,505 60,785
Net increase/(decrease) in cash and cash
equivalents. . . . . . . . . . . . . . . . . . . . . . . . 713 (454) (272)
Cash and cash equivalents at beginning of
year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374 1,030 603
Effect of foreign exchange rate changes . . . (57) 27 (53)
Cash and cash equivalents at end of year . . 1,030 603 278
KEY FINANCIAL RATIOS
Year ended/As of December 31,
2018 2019 2020
Gross profit margin . . . . . . . . . . . . . . . . . . 69.6% 67.2% 61.2%
Current ratio . . . . . . . . . . . . . . . . . . . . . . . . 0.5 0.6 1.3
Quick ratio . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 0.5 1.1
Gearing ratio . . . . . . . . . . . . . . . . . . . . . . . . 77.9% 1,257.9% 5.9%
RISK FACTORS
Our business and operations involve certain risks and uncertainties, many of which are
beyond our control. These risks can be broadly categorized as: risks relating to our business; risks
relating to doing business in the PRC; and risks relating to our Shares and the [REDACTED].
Major risks we face include, among others, the following: (i) as a developing mining company
with a single peridot mining project which is at the mine site infrastructure development and mine
construction preparation stage, we cannot assure you that we will be able to bring our mining
project to commercial production or that our operations will be profitable; (ii) our extensive
marketing and promotional initiatives may not be successful in building market demand for our
peridot; (iii) we may not succeed in raising prices of peridot gemstones with our marketing and
promotional efforts, and the substantially expanded market supply of peridot from our YQS
Nanshan Project may instead depress market prices of peridot; (iv) we face uncertainties relating
to the quality and characteristics of our gem-grade peridot; (v) our future mining operations are
exposed to risks and hazards that are commonly associated with the mining industry, such as those
relating to geological conditions, equipment failure, weather conditions and government action;
and (vi) if we fail to obtain, retain and/or renew government approvals, permits and licenses
required for our mining activities, our business, financial condition, results of operations and
prospects could be materially and adversely affected.
COMPETITIVE LANDSCAPE
The overall global colored gemstone market is competitive and fragmented with many
industry players. Except for a few recognized players in the global colored gemstone market such
as Gemfields Group Limited, most are small scale or artisanal miners. Companies with high
quality and stable mines, sufficient capital, strong sales channel networks as well as convenient
geographical locations tend to gain more competitive advantages. Some leading companies in the
–9–THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN
CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
industry tend to integrate with the downstream industry by building own jewelry brands or
cooperating with downstream jewelry brand owners and designers. Furthermore, leading industry
players are committed to educating consumers through marketing strategies in order to increase
customer awareness and visibility of colored gemstones. Marketing, brand building and sustainable
or environmentally friendly mining have become the new factors of competition in the global
colored gemstone industry. See “Industry Overview — Competitive Landscape of the Colored
Gemstone Industry” in this document for detail.
LEGAL PROCEEDINGS AND COMPLIANCE
During the Track Record Period and up to the Latest Practicable Date, we did not commit any
material non-compliance with applicable laws or regulations, which taken as a whole, in the
opinion of our Directors, are likely to have a material and adverse effect on our business, financial
condition or results of operations. As of the Latest Practicable Date, we were not a party to any
legal or administrative proceedings. In addition, our Directors are not aware of any claims or
proceedings threatened against us or in relation to our mining rights which have been contemplated
by government authorities or third parties that might materially and adversely affect our
operations, financial condition and reputation. Our Directors confirm that during the Track Record
Period and up to the Latest Practicable Date, we have complied with the relevant laws and
regulations in all material aspects and have obtained all the material approvals, permits and
licenses for our current business operations.
OUR CONTROLLING SHAREHOLDERS
Immediately following the completion of the [REDACTED] and the [REDACTED]
(assuming the [REDACTED] is not exercised and without taking into account any Shares which
may be issued upon the exercise of any options which may be granted under the Share Option
Scheme), Mr. Yu, through Kind Modest, his wholly-owned investment holding company, will be
indirectly interested in [REDACTED]% of our Company’s issued share capital. For the purpose of
the Listing Rules, Mr. Yu and Kind Modest are regarded as our Controlling Shareholders. See
“Relationship with our Controlling Shareholders” in this document for details.
[REDACTED] INVESTMENTS
We have received [REDACTED] investments from eight investors, namely, Mr. Jiang Daiwei
(through Starry Global), Tegus Partnership and the Lenders (as defined in “History, Reorganization
and Corporate Structure” in this document), for an aggregate consideration of HK$50,726,380.
Such [REDACTED] investments represented [REDACTED]% of the total issued Shares
immediately following the completion of the [REDACTED] and the [REDACTED] (assuming the
[REDACTED] is not exercised and without taking into account any Shares which may be issued
upon the exercise of any options which may be granted under the Share Option Scheme). See
“History, Reorganization and Corporate Structure” in this document for details.
WAIVER APPLICATIONS
We have applied for, [and the Stock Exchange has granted us], (i) a waiver from strict
compliance with Rule 8.12 of the Listing Rules; (ii) a waiver from strict compliance with Rules
3.28 and 8.17 of the Listing Rules; and (iii) a waiver from strict compliance with Rule 8.05(1)(a)
of the Listing Rules. See “Waivers from Strict Compliance with the Listing Rules” in this
document for details.
DIVIDEND
Our Company does not have any specific dividend policy nor pre-determined dividend payout
ratios. In the future, declaration and payment of any dividends would require the recommendation
of our Board and will be at their discretion. During the Track Record Period, we did not declare or
distribute any dividends. See “Financial Information — Dividend” in this document for details.
– 10 –THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN
CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
[REDACTED] EXPENSES
Assuming the [REDACTED] of HK$[REDACTED] per [REDACTED], being the mid-point
of the indicative range of the [REDACTED] stated in this document (and assuming no
[REDACTED] is exercised), the total amount of expenses in relation to the [REDACTED] are
estimated to be RMB[REDACTED] including the [REDACTED] commission and other
[REDACTED] expenses and fees. The expenses in relation to the [REDACTED] shall be borne
by our Company, of which RMB5.9 million and RMB[REDACTED] was and will be charged to
our Group’s profit and loss for the year ended December 31, 2020 and the year ending December
31, 2021, respectively, and RMB[REDACTED] of its estimated [REDACTED] expenses is
directly attributable to the issue of the [REDACTED] and is to be accounted for as a deduction
from equity in accordance with the relevant accounting standard after [REDACTED] for the year
ending December 31, 2021. The total expenses for the [REDACTED] represents [REDACTED]%
of the [REDACTED] from the [REDACTED], based on the mid-point of the proposed
[REDACTED] range (assuming that the [REDACTED] is not exercised) and the above estimated
total expenses for the [REDACTED].
[REDACTED] STATISTICS
Based on an [REDACTED] Based on an [REDACTED]
of HK$[REDACTED] of HK$[REDACTED]
per Share per Share
Market capitalization of our Shares1 . . . . . HK$[REDACTED] HK$[REDACTED]
million million
RMB HK$2 RMB HK$2
[REDACTED] adjusted consolidated net
tangible assets attributable to owners
of the parent per Share as at December
31, 20203 . . . . . . . . . . . . . . . . . . . . . . [REDACTED] [REDACTED] [REDACTED] [REDACTED]
Notes:
1. All statistics in this table are based on the assumption that the [REDACTED] is not exercised. The calculation of
market capitalization is based on [REDACTED] Shares expected to be issued and outstanding following
completion of the [REDACTED] and the [REDACTED].
2. The [REDACTED] adjusted consolidated net tangible assets attributable to owners of the parent per Share are
converted into Hong Kong dollars at an exchange rate of RMB0.845 to HK$1.00.
3. The [REDACTED] adjusted consolidated net tangible assets attributable to owners of the parent per Share is
arrived at after adjustments referred to in Appendix II to this document and based on [REDACTED] Shares
expected to be issued and outstanding following completion of the [REDACTED] and the [REDACTED].
USE OF [REDACTED]
We estimate that we will receive [REDACTED] from the [REDACTED] of approximately
HK$[REDACTED] million (after deducting the [REDACTED] commission and other estimated
expenses paid and payable by us in connection with the [REDACTED]), assuming an
[REDACTED] of HK$[REDACTED] per [REDACTED], being the mid-point of the
[REDACTED] range of HK$[REDACTED] to HK$[REDACTED], and no exercise of the
[REDACTED]. In accordance with our commercialization scheme devised for the purpose of
bringing our YQS Nanshan Project to full commercialization, we will apply our [REDACTED] in
the following manner:
• Approximately HK$[REDACTED] million (or RMB[REDACTED] million), being
[REDACTED]% of the [REDACTED], will be applied for the construction and mining
operations of our YQS Nanshan Project;
• Approximately HK$[REDACTED] million (or RMB[REDACTED] million), being
[REDACTED]% of the [REDACTED], will be applied for the implementation and running
of our global marketing strategies (see “Path to Commercialization — Our Commercialization
Roadmap — Our Global Marketing Strategies” in this document for details);
– 11 –THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN
CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
• Approximately HK$[REDACTED] million (or RMB[REDACTED] million), being
[REDACTED]% of the [REDACTED], will be applied for our sales channel
development initiatives (see “Path to Commercialization — Our Commercialization
Roadmap — Sales Channel Development” in this document for details); and
• Approximately HK$[REDACTED] million (or RMB[REDACTED] million), being
[REDACTED]% of the [REDACTED], will be allocated for our general working
purposes.
See “Future Plans and [REDACTED]” in this document for details.
RECENT DEVELOPMENTS AND NO MATERIAL ADVERSE CHANGE
Recent Developments
Since January 1, 2021 and up to the Latest Practicable Date, we have continued our brand
awareness initiatives to build market traction for our peridot. We participated in the 2021 China
International Consumer Products Expo held in May 2021 in Haikou, Hainan, China. During the
expo, we showcased our rough peridot, cut-and-polished peridot as well as the jewelry designer
pieces made with our peridot and designed by Zeemou Zeng Limited and Memorigin Watch Co.,
Ltd. We also gave a presentation on peridot during the expo for educational purposes to generate
interest and create market traction ahead of our commercial production.
In 2021, we have entered into non-binding memoranda of understanding with Zeemou Zeng
Limited, Annoushka Ltd, Stephen Webster Limited, Memorigin Watch Co., Ltd. and Cuihuating
(Beijing) Jewelry Co., Ltd.* (萃華廷 ( 北京 ) 珠寶有限公司) to explore potential areas of
collaboration, including the use of our peridot in their respective jewelry collections and pieces,
and global marketing and promotion of our peridot. See “Business — Marketing and Sales —
Marketing Activities” for details.
As a developing mining company yet to commence commercial production, we have been
funding our operational, liquidity and capital requirements primarily through equity contributions,
advances from Shareholders and other borrowings. On April 1, 2021, we entered into an agreement
with Mr. Yu Bing Han, a Shareholder then holding 0.38% of the total issued share capital of our
Company, for a Shareholder’s loan with principal amount of HK$13.0 million at an interest rate of
2.0% per year. See also “Financial Information — Indebtedness” in this document for further
details.
On May 30, 2021, Jilin Dunhua Development Investment Group Co., Ltd.* (吉林敦化發展投
資集團有限公司) (“Jilin Dunhua”), a state-owned enterprise wholly-owned by the State-owned
Assets Administrative Commission of Dunhua City (敦化市國有資產管理局) and an Independent
Third Party, entered into a capital increase agreement with us to subscribe for an increased
registered capital of RMB644,468 in Yanbian Fuli at a consideration of RMB34 million. See
“History, Reorganization and Corporate Structure — Subsequent Events to the Reorganization but
before the [REDACTED] — (v) Increase in the registered capital of Yanbian Fuli and subscription
by Jilin Dunhua” in this document for details.
No Material Adverse Change
Since December 31, 2020 and up to the Latest Practicable Date, our business and financial
performance generally continued in line with past trends and expectations. To the best of our
knowledge, there were no changes in the general economic and market conditions in the industry
in which we operate that may have a material adverse effect on our business operations or
financial condition.
– 12 –THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN
CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
SUMMARY
Impact and Measures Taken in Response to the Outbreak of COVID-19
An outbreak of respiratory illness caused by COVID-19 emerged in late 2019 and continues
to spread globally. Since the outbreak, significant restrictions have been imposed within many
countries in an effort to contain the coronavirus outbreak. Such measures include quarantine
measures, travel restrictions, encouraging work-from-home arrangements and cancellation of
public activities. The extent to which COVID-19 will impact our results of operations depends on
the future developments of the outbreak, including new information concerning the global severity
of and actions taken to contain the outbreak, which are highly uncertain and unpredictable. To the
extent the COVID-19 pandemic adversely affects our business and financial results, it may also
have the effect of heightening many of the other risks described in the “Risk Factors” section, such
as those relating to our liquidity position. Our operations could also be severely disrupted if our
suppliers, customers, or business partners were affected by such health epidemics.
As a developing mining company at the mine infrastructure development and mine
construction preparation stage with no material revenue, our Directors are of the view that the
COVID-19 pandemic has not had any material adverse impact on our business, results of
operations and financial condition.
Business operations
During the COVID-19 pandemic in early 2020, the above-the-ground mine-site preparation
work of our YQS Nanshan Project was suspended as we usually would during winter months due
to weather conditions. We resumed our above-the-ground site work in April 2020. Since then and
up to the Latest Practicable Date, we have not experienced any adverse impact from COVID-19
outbreak on the construction preparation of our YQS Nanshan Project.
During the initial outbreak of the COVID-19 pandemic, we arranged for employees to work
from home as recommended by the relevant government. As of the Latest Practicable Date, all of
our employees have returned to work in their respective offices other than our employees in UK
where we still encourage them to work from home when possible and only return to the office if
necessary. We have also adopted enhanced public hygiene and precautionary measures as well as
supplied personal cleansing and protective products to our employees within the office areas.
Marketing and sales initiatives
We initially scheduled attendances for a number of jewelry trade shows in 2020, among
which we only attended two in person as of December 31, 2020, whereas three were postponed.
With a view to mitigating the impact of travelling restrictions imposed by various countries which
largely restricted our ability to conduct face-to-face meetings with targeted value chain players, we
instead arranged videoconference sessions and utilized email communications with our key target
brands and designers for relationship building purposes.
In light of the above, our Directors believe that the outbreak of COVID-19 will not have
material adverse impact on our overall business operations and financial performance for the year
ending December 31, 2021. However, there can be no assurance that the direct and indirect effects
of COVID-19 will not have a greater impact on the global economy and our industry as a whole. If
the pandemic evolves, economic slowdown and/or negative business sentiment could still
potentially have an adverse impact on our industry or the industries in which our target customers
operate, which could adversely affect our business operations and financial condition. See “Risk
Factors — Risk relating to our business — Any outbreak of widespread contagious diseases, such
as the outbreak of COVID-19, may have a material adverse effect on our business, prospects,
financial condition and results of operations.”
– 13 –You can also read
