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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Rare Earth | LSE:REG | London | Ordinary Share | KYG7386L1059 | ORD USD0.001 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 38.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Jun 2019 to Jun 2024
TIDMREG
RNS Number : 2162I
Rare Earths Global Limited
01 July 2013
29 June 2013
Rare Earths Global Limited
("REG" or the "Group")
Full Year Results
Rare Earths Global Limited (AIM: REG), a leading mining services group focused on the extraction, separation, refinement and trading of rare earth elements, oxides and other related products, today releases its full year results for the year ended 31 December 2012.
Highlights
Hot Features
Premium
* Successful listing on the London Stock Exchange's
Alternative Investment Market in March 2012;
* GBP 6.4 million fund raising;
* Commencement of the Group's trading division;
* Revenue RMB 88.4 million (2011: RMB 260.6 million);
* Non-GAAP normalised loss before tax RMB 598
thousand(1) (2011: profit before tax RMB 59.2
million);
* Acquisition of the remaining 39% Pingyuan Sanxie Rare
Earth Smelting Co Ltd ("Sanxie Plant") from Grace
Coast Limited in July 2012;
* Impairment on goodwill and other intangibles of RMB
100 million
* Significant fall in rare earth oxide prices during
the year, ranging from 44% to 73% depending on the
types of elements;
* Significant changes to legislation in China regarding
rare earth production and supply.
(1) Refer to the reconciliation on page 5 for the calculation of non-GAAP normalised loss.
Commenting on the results, Simon Ong, CEO of Rare Earths Global Limited, said: "2012 has been a challenging year for REG. The progress we had hoped to make has been severely hampered by large falls in rare earth oxide prices; delays in the period of confirmations of production and export quotas from the Chinese Government; and, implementation of increased regulation and control by Ministry of Commerce People's Republic of China ("MOFCOM") as a result of the first Chinese White Paper on the Rare Earths market. Looking forward we will hope to use 2013 to consolidate and strengthen our business in China while looking for opportunities to export our skills and technical expertise to the rest of the world."
- Ends -
For further information:
Rare Earths Global Limited
Simon Ong, Chief Executive Tel: +86 755 8633
Officer 6388
Brian Ho, Finance Director www.rareearthsglobal.com
Charles Stanley Securities
Nominated Adviser & Broker
Dugald J. Carlean / Carl Tel: +44 (0) 20
Holmes 7149 6000
www.csysecurities.com
Business Review
The rare earth industry in China has gone through extraordinary changes in the last 12 months. As set out in our Interim Results published on 25 September 2012, as a result of the Chinese Government's White Paper on rare earth ("the White Paper") published on 20 June 2012, the Ministry of Industry and Information Technology ("MIIT") released a statement which recommended that mixed rare earth mines in China will need to produce a minimum of 20,000 metric tonnes a year and smelters will have to ensure annual output of at least 3,000 tonnes. At the time of our Interim Results, it was predicted that up to a third of China's 23 mines and 99 smelting companies would fail to meet the new regulations, resulting in China reducing its mining of the 17 elements by about one-fifth.
The Board of REG could not be certain as to how rapidly these changes would be effected in legislation. In reality, the White Paper and comments by MIIT have meant that all production of rare earth in China has been materially affected as the Government looks more closely at regulating the industry within China in an attempt to create fewer market participants, prevent illegal smuggling and help underpin falling rare earth prices. Indeed, in October 2012, the Chinese Government took the unprecedented step of halting production of Inner Mongolia Baotou Steel Rare-Earth (Group) High-tech Co., China's leading rare earth producer for 3 months in a vain attempt to stall falling prices.
It has become more difficult to secure meaningful production quotas in the rare earth industry in China. There continue to be delays from the Government in providing production quotas for a number of separation and smelting plants including REG despite our plant at Sanxie being compliant and fully operational and all relevant documentation having been filed with the authorities. Unfortunately, given the current circumstances, we cannot be certain when the production quota will be confirmed for the current year.
The events of the past year have demonstrated the growing importance the Chinese Government places on rare earth oxides ("REO") production and the efficient control and regulation of the domestic market. The Board continues to believe that demand for REO's in the medium and long term will increase and that the outlook for the REO industry is positive. However, the short term is increasingly uncertain. Global rare earth prices remain weak (down by up to 80% in 2012) and we cannot say with any significant confidence that this downward trend in prices is showing any sign of reversing. This should all be considered in context when taking into account the weak Chinese export data for rare earths for the first 4 months of 2013.
The Board continues to work on different options to ensure that REG deals with these short term issues. However, the Board believes that the primary short term goal is to secure the production quota for 2013 and begin work on increasing capacity at its separation plant in Sanxie to meet the minimum requirements. The Board has taken the first steps to increase production at its Sanxie plant by appointing consultants to work with local and national government to secure ongoing production quotas and provide guidance on the work programme needed to comply with the MIIT requirements. As a result of this, the Sanxie Plant has been and will be required to cease production periodically during 2013 meaning that revenues for the current year from the separation and smelting division will be materially lower than in previous year and significantly weighted to the second half of 2013. The Board believes that this short term drop in revenues is an absolute necessity in order to secure the long term future of the separation business. We will update shareholders in more detail in due course.
Financial Results
For the financial year ended 31 December 2012, the Group recorded turnover of approximately RMB 88,413,000 (2011: RMB 260,632,000), which mainly comprises of a turnover of (i) approximately RMB 57,695,000 from sales and separation of rare earth oxides (2011: RMB241,332,000); (ii) approximately RMB 8,543,000 from provision of mining management services (2011:RMB 19,366,000); and (iii) approximately RMB 22,176,000 (2011:nil) representing income from trading of rare earth oxides.
The Group's total turnover decreased by 66% from last year being attributable primarily to the decrease in sales volume of REO, a decline in average selling prices, and reduction of revenue from mining management service, which was partially offset by the commencement of the trading business in 2012.
Following the rapid growth of rare earth market in 2011, the price of products fell materially in the reporting period. The Group's net loss was approximately RMB 166,743,000 (2011:net profit of RMB 48,153,000). The Group has turned to loss from profit because a number of factors: (i) as the business environment had deteriorated compared with the time when acquisition of the business was made in 2011, the Group recorded a full impairment of goodwill of RMB 97.1 million and impairment on the intangible assets and prepayment of approximately RMB 2.9 million and RMB 3.9 million respectively during the year based on the management's projection about the future market; The Group also recorded a provision for inventory of RMB 15.8 million during the year mainly due to the substantial reduction of rare earth products' prices during the year which continues subsequent to the end of the reporting period. (ii) the increase in share-based payments expenses of approximately RMB 27.8 million (2011:nil) and (iii) the increase in finance cost recognized in the consolidated statement of comprehensive income from approximately RMB 2.4 million in last financial year to approximately RMB 6.8 million in the reporting period. (iv) change in fair value of financial assets through profit and loss amounted to a loss of RMB 9.8 miilion (2011: gain of RMB321 thousand). The loss per share was RMB 2.6 (2011: earnings per share of RMB 47 cents).
A reconciliation from loss before tax to normalized loss is shown below:
2012
RMB'000
Losses before tax report under
IFRS (165,475)
Adjusted for:
Share-based payment expenses 27,824
Impairment loss on goodwill 97,115
Impairment loss on other intangible
assets 2,885
Impairment loss on prepayments 3,895
Provision for inventories 15,898
Change in fair value of financial
assets at fair value through
profit and loss 9,754
Legal and professional fee
related to listing exercise 7,506
Normalised losses for the year
before tax (598)
==========
As at 31 December 2012, the Group recorded total assets of approximately RMB 165,358,000 (as at 31 December 2011: approximately RMB 282,743,000), and recorded total liabilities of approximately RMB 204,063,000 (as at 31 December 2011: approximately RMB 178,900,000). The Group's net liabilities value as at 31 December 2012 was approximately RMB 38,705,000 as compared to net assets of approximately RMB 103,843,000 as at 31 December 2011. The decrease in the Group's net asset value was mainly attributable to the impairment of goodwill, other intangible assets, inventory and prepayment, and the reduction of revenue as explained above.
Divisional Review
Separation & Smelting
During the year, the Group sold approximately 89 tonnes of REO, down by about 89% compared with that in 2011. Turnover from the separation and smelting business decreased by approximately 76% from RMB241,333,000 last year to RMB57,695,000. As production cost remained high, coupled with low product price, gross profit margin dropped from 27% last year to 19% before provision for inventories of RMB 15,898,000. Taking into account the provision for inventories, the separation and smelting segment recorded a segment loss of about RMB 4,664,000, compared to a profit of RMB 64,249,000 last year.
As set out above, the declining sales were a direct result of the drop in ROE prices and not being able to secure a production quota during the period under review and the lack of confidence in the Chinese rare earth market following the release of the White Paper. As set out above, the Board are now working with third parties to ensure that a production quota for 2013 is secured and that the plant makes the necessary initial changes to allow it to increase its capacity to ensure it meets any new regulations.
Mining Services
The total turnover of the Group's mining management service decreased by 56% from RMB 19,366,000 last year to RMB 8,543,000 in 2012. Gross profit margin dropped slightly from 58% in 2011 to 51% in 2012. The drop in mining services revenue is again a result of falling rare earth prices and a decrease in production from the Kexin mine. The income generated mainly relates to pure consultancy income received during the year rather than any revenue share. The Company is hopeful of adding to the current consultancy agreements it has during the year and will keep shareholders updated in due course.
Trading
Trading commenced in April 2012 with revenue of RMB 22,176,000 and gross profit of RMB 3,222,000, a 15% margin. As it became clear that no export quota would be forthcoming during 2012 the trading operation was scaled back significantly mainly relying on trading of rare earth that had already been exported. During the period under review key relationships were developed with rare earth trading desks in Korea and Taiwan and we hope to be able to develop these further in the future once our export quota is confirmed.
The Annual Report and Accounts have been sent to all shareholders on Saturday 29(th) June along with the AGM Notice both of which are available on the Company's website at: www.rareearthsglobal.com. The AGM will be held at 9.30am on 16 August 2013 at the offices of Proton Invest Holdings Ltd.,7 Floor, 10 Block Shenzhen Software Park Keji Middle 2nd Road, Nanshan District, Shenzhen, Guangdong, P.R.China 518000.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2012
2011 2012
RMB RMB
Revenue 260,632,537 88,413,496
Cost of sales and services (181,040,651) (87,929,148)
-------------- --------------
Gross profit 79,591,886 484,348
Other income 121,759 363,725
Changes in fair values of
financial assets at fair value
through profit or loss 321,000 (9,754,000)
Selling and distribution costs (3,860,973) (1,436,947)
Administrative expenses (14,631,959) (44,474,099)
Other expenses - (103,895,441)
Finance costs (2,389,210) (6,762,924)
-------------- --------------
Profit (loss) before tax 59,152,503 (165,475,338)
Income tax expense (10,999,637) (1,268,129)
-------------- --------------
Profit (loss) for the year 48,152,866 (166,743,467)
-------------- --------------
Other comprehensive expense
Exchange differences arising
on translation - (89,658)
-------------- --------------
Total comprehensive income
(expense) for the year 48,152,866 (166,833,125)
-------------- --------------
Profit (loss) for the year
attributable to:
Owners of the Company 28,582,697 (168,219,581)
Non-controlling interests 19,570,169 1,476,114
-------------- --------------
48,152,866 (166,743,467)
Total comprehensive income
(expense) for the year
attributable to:
Owners of the Company 28,582,697 (168,309,239)
Non-controlling interests 19,570,169 1,476,114
-------------- --------------
48,152,866 (166,833,125)
EARNINGS (LOSS) PER SHARE
Basic 0.47 (2.60)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 31 DECEMBER 2012
2011 2012
RMB RMB
ASSETS
Non-current Assets
Other receivables 3,000,000 -
Prepaid lease payments 3,537,090 3,456,770
Property, plant and equipment 25,403,960 21,438,148
Deposit paid for acquisition of
property, plant and equipment 8,000,000 11,000,000
Goodwill 97,115,400 -
Other intangible assets 4,319,198 -
------------ -------------
Total non-current assets 141,375,648 35,894,918
------------ -------------
Current Assets
Inventories 56,920,646 47,477,468
Trade and other receivables and
prepayments 46,872,992 73,504,836
Prepaid lease payments 80,320 80,320
Bank balances and cash 23,892,468 8,400,314
Financial assets at fair value
through profit or loss 13,601,000 -
------------ -------------
Total current assets 141,367,426 129,462,938
------------ -------------
Total Assets 282,743,074 165,357,856
------------ -------------
EQUITY AND LIABILITIES
Capital and Reserves
Share capital 29,500,430 426,985
Reserves 39,253,111 (39,844,947)
------------ -------------
Equity attributable to owners
of the Company 68,753,541 (39,417,962)
Non-controlling interests 35,089,922 712,944
------------ -------------
Total Equity (Deficit) 103,843,463 (38,705,018)
------------ -------------
Non-current Liabilities
Deferred taxation liabilities 4,574,366 2,888,292
Amount due to related parties - 100,074,846
Bank borrowing 8,380,000 -
------------ -------------
Total non-current liabilities 12,954,366 102,963,138
------------ -------------
Current Liabilities
Trade and other payables and accruals 18,596,259 22,231,758
Amounts due to related parties 140,065,998 68,071,568
Bank borrowing 2,320,000 8,450,000
Taxation payable 4,962,988 2,346,410
------------ -------------
Total current liabilities 165,945,245 101,099,736
------------ -------------
Total Equity and Liabilities 282,743,074 165,357,856
------------ -------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2012
Retained
profits Share Non-
Share (accumulated Other options Translation controlling
Share premium losses) reserves reserve reserves Sub-total interests Total
capital
RMB RMB RMB RMB RMB RMB RMB RMB RMB
At 1 January
2011 341,445 - (1,728,586) 2,036,000 - - 648,859 15,349,450 15,998,309
Profit and
comprehensive
income for the
year - - 28,582,697 - - - 28,582,697 19,570,169 48,152,866
Capital
injection 29,158,985 - - - - - 29,158,985 - 29,158,985
Recognition of
call option - - - 10,363,000 - - 10,363,000 - 10,363,000
Capital
contribution
from
non-controlling
interests of
a subsidiary - - - - - - - 170,303 170,303
------------- ------------ -------------- -------------- ----------- ------------ -------------- ------------- --------------
At 31 December
2011 29,500,430 - 26,854,111 12,399,000 - - 68,753,541 35,089,922 103,843,463
Loss for the
year - - (168,219,581) - - - (168,219,581) 1,476,114 (166,743,467)
Other
comprehensive
expense - - - - - (89,658) (89,658) - (89,658)
------------- ------------ -------------- -------------- ----------- ------------ -------------- ------------- --------------
Total
comprehensive
expense for the
year - - (168,219,581) - - (89,658) (168,309,239) 1,476,114 (166,833,125)
------------- ------------ -------------- -------------- ----------- ------------ -------------- ------------- --------------
Equity-settled
share based
payment - - - - 27,824,313 - 27,824,313 - 27,824,313
Capital
reorganisation (29,115,297) - - 29,115,297 - - - - -
Issuance of
shares
for acquisition
of
non-controlling
interest in a
subsidiary 25,480 71,092,754 - (102,242,142) - - (31,123,908) (35,853,092) (66,977,000)
Issuance of
subscription
shares 16,372 64,534,244 - - - - 64,550,616 - 64,550,616
Transaction
costs
attributable
to shares
issued (1,113,285) - - - - (1,113,285) - (1,113,285)
------------- ------------ -------------- -------------- ----------- ------------ -------------- ------------- --------------
At 31 December
2012 426,985 134,513,713 (141,365,470) (60,727,845) 27,824,313 (89,658) (39,417,962) 712,944 (38,705,018)
------------- ------------ -------------- -------------- ----------- ------------ -------------- ------------- --------------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2012
2011 2012
RMB RMB
OPERATING ACTIVITIES
Profit (loss) for the year 59,152,503 (165,475,338)
Adjustments for:
Depreciation of property, plant
and equipment 3,397,895 4,074,516
Amortisation of prepaid lease payments 80,320 80,320
Amortisation of other intangible
assets 1,434,157 1,434,157
Finance costs recognised in profit
or loss 2,389,210 6,762,924
Interest income (58,076) (30,088)
Loss on disposal of property, plant
and equipment 78,312 411,880
Impairment loss on goodwill - 97,115,400
Impairment loss on other intangible
assets - 2,885,041
Impairment loss on prepayments - 3,895,000
Provision for inventories - 15,897,778
Share-based payment expenses - 27,824,313
Changes in fair values of financial
assets at fair value through profit
and loss (321,000) 9,754,000
------------- --------------
Operating cash flows before movements
in working capital 66,153,321 4,629,903
Increase in inventories (49,568,462) (6,454,600)
Increase in trade and other receivables
and prepayments (4,476,502) (27,526,844)
(Decrease) increase in trade and
other payables and accruals (10,248,521) 3,635,499
------------- --------------
Cash generated from (used in) operations 1,859,836 (25,716,042)
Interest received 58,076 30,088
Income tax paid (7,214,174) (5,570,781)
------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (5,296,262) (31,256,735)
------------- --------------
INVESTING ACTIVITIES
Proceeds from disposal of property,
plant and equipment - 46,000
Payments for property, plant and
equipment (10,788,082) (566,584)
Deposit paid for acquisition of
property, plant and equipment (8,000,000) (3,000,000)
------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (18,788,082) (3,520,584)
------------- --------------
FINANCING ACTIVITIES
Proceeds from issuance of shares 29,158,985 64,550,616
Expenses on issuance of shares - (1,113,285)
Interest paid (1,218,903) (1,941,672)
New bank borrowing raised 10,700,000 -
Repayment of bank borrowing - (2,500,000)
Capital contribution from non-controlling
interest of a subsidiary 170,303 -
Advance from related parties 64,106,488 35,908,113
Repayment to related parties - (18,503,307)
Repayment to non-controlling interests (9,975,500) =
Cash considerations paid for acquisition
of a subsidiary (51,300,000) (30,000,000)
Cash considerations paid for acquisition
of additional
interest in a subsidiary - (27,025,642)
------------- --------------
NET CASH FROM FINANCING ACTIVITIES 41,641,373 19,374,823
------------- --------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 17,557,029 (15,402,496)
CASH AND CASH EQUIVALENTS AT THE
BEGINNING OF THE YEAR 6,335,439 23,892,468
Effect of foreign exchange rate
changes - (89,658)
------------- --------------
CASH AND CASH EQUIVALENTS AT THE
END OF THE YEAR
represented by bank balances and
cash 23,892,468 8,400,314
------------- --------------
GROUP RESTRUCTURING
Rare Earths Global Limited (the "Company") was incorporated in the Cayman Islands on 8 February 2012. In preparation for the listing of the Company's shares on the London Stock Exchange's market for smaller and growing companies ("AIM") in March 2012, the Group executed the following restructuring transaction (the "Restructuring"). The Company became the holding company of Dressport Limited ("Dressport") and its subsidiaries pursuant to a share exchange agreement relating to the sale and purchase of shares in Dressport dated 7 March 2012 (the "Share Exchange Agreement"). The Company acquired the entire equity interest in Dressport from its shareholders by means of share exchange whereby 60,994,790 ordinary shares of the Company were issued to the shareholders of Dressport, at par credited as fully paid, in exchange for all the outstanding ordinary shares (50,829) of Dressport. The share exchange was conducted with a ratio of 1,200 shares of the Company to one share of Dressport on a pro-rata basis. Thereafter, the Company has become the holding company of Dressport and its subsidiaries.
The consolidated financial statements of the Group have been prepared using the principles of merger accounting involving Dressport and its subsidiaries, as if the group structure under the Restructuring have been in existence since their respective dates of incorporation.
The immediate parent company of the Company is City Group Limited (incorporated in the British Virgin Islands) and its ultimate controlling party is Mr. Simon Ong.
The consolidated financial statements are presented in Renminbi, which is also the functional currency of the Company.
Dressport is a limited company incorporated in the British Virgin Islands on 25 May 2010. On 20 July 2010, Dressport acquired 60% equity interests of Pingyuan Sanxie Rare Earth Smelting Company Limited ("Sanxie") from Mr. Tong Man Tak. The acquisition of the 60% equity interest of Sanxie was accounted using the acquisition method. On 25 July 2012, the Group acquired an additional 39% equity interest of Sanxie.
BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
Going concern
In preparing the consolidated financial statements for the year ended 31 December 2012, the management has assessed the liquidity position and going concern of the Group in light of the fact that the Group has incurred a loss of RMB166,743,467 for the year ended 31 December 2012 and had net liabilities of RMB38,705,018 as at 31 December 2012. The loss was mainly the result of the non-cash impairment loss on goodwill of RMB97,115,400, the lack of production and sales since the final quarter of 2012 and the significant reduction in the market price of rare earth oxides.
The Group has limited external borrowings. Furthermore, although there were substantial amounts due to related parties falling due in 2013; subsequent to the year end, the Group has entered into agreements to extend the settlement date of such amounts. The Group entered into supplemental agreements with Mr. Ong, a director and controlling shareholder of the Company, and Mr. Tong, a shareholder of the Company, for the extension of the borrowings of RMB31,356,164 and RMB66,104,358, respectively, to a maturity date of 31 March 2015.
The Group regularly produces cash flow statements and forecasts; and sensitivities are run for different scenarios including, but not limited to, future operating performance subject to obtaining the approval of production quota, changes in prices of rare earth oxides and different production rates from the Group's producing assets. As of the date of this report, the Group is still uncertain whether it will be granted any production quota by the regulators in the PRC for fiscal 2013. Notwithstanding the above uncertainties, the Directors believe that the Group's forecasts and projections, taking account of reasonably possible changes in economic assumptions, show that the Group will be able to meet in full its contractual commitments and financial obligations for the foreseeable future.
For the above reasons, the Directors believe that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the consolidated financial statements for the year ended 31 December 2012 have been prepared on a going concern basis.
SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance
The Group's consolidated financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board.
Basis of preparation
The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods.
The principal accounting policies are set out below.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.
All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.
Non-controlling interests in subsidiaries are presented separately from the Group's equity therein.
Allocation of total comprehensive income to non-controlling interests
Total comprehensive income and expense of a subsidiary is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
Changes in the Group's ownership interests in existing subsidiaries
Changes in the Group's ownership interests in existing subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.
Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:
- deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;
- liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at the acquisition date; and
- assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate share of the recognised amounts of the acquiree's identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at their fair value or another measurement basis required by another Standard.
Where the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and considered as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with the corresponding adjustments made against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the "measurement period" (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognised in profit or loss.
Where the Group acquires an interest in an entity which upon acquisition will be a non-wholly owned subsidiary, and as part of the acquisition, also enters into a written put option with the seller that permits the seller to put their remaining interest in the acquired entity to the Group at a specific price, a gross obligation is recognised at an amount equal to the present value of the amount that could be required to be paid to the counterparty. Changes in the measurement of the gross obligation due to the unwinding of the discount that the Group could be required to pay are recognised in profit or loss. The Group will reclassify the liability to equity if the put option expires or is unexercised.
Goodwill
Goodwill arising on an acquisition of a business is carried at cost less any accumulated impairment losses, if any, and is presented separately in the consolidated statement of financial position.
For the purposes of impairment testing, goodwill is allocated to each of the cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently whenever there is an indication that the unit may be impaired. For goodwill arising on an acquisition in a reporting period, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that reporting period. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit, and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed in subsequent periods.
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the amount of profit or loss on disposal.
Accounting for business combination involving entities under common control
The consolidated financial statements incorporate the financial statements items of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party.
The net assets of the combining entities or businesses are consolidated using the existing book values from the controlling party's perspective. No amount is recognised in respect of goodwill or excess of acquirer's interest in the net fair value of acquiree's identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party's interest.
The consolidated statement of comprehensive income includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where this is a shorter period, regardless of the date of the common control combination.
The comparative amounts in the consolidated financial statements are presented as if the entities or businesses had been combined at the end of the previous reporting period or when they first came under common control, whichever is shorter.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold and services provided in the normal course of business, net of discounts and sales related taxes. Revenue is not reduced for export duties related to overseas sales.
The Group's revenues are principally from sales of rare earth metals and products to customers in the People's Republic of China (the "PRC") and overseas. The Group recognises revenue when goods have been delivered and title has passed, at which point the Group has transferred to the buyers the significant risks and rewards of ownership of the goods, retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Group, and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Service income including that from mining management services is recognised when services are provided.
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.
Cost of sales and services
Cost of goods sold primarily consists of cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition for sales.
Cost of services primarily consists of costs of labor and materials used to render the services.
Property, plant and equipment
Property, plant and equipment including building held for use in the production or supply of goods or services, or for administrative purposes are stated in the consolidated statement of financial position at cost less subsequent accumulated depreciation and accumulated impairment losses, if any.
Depreciation is recognised so as to write off the cost of items of property, plant and equipment, less their residual values over their estimated useful lives, using the straight line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.
Prepaid lease payments
Prepaid lease payments represent up-front payments to acquire leasehold land interests and are stated at cost and amortised over the period of the lease on a straight-line basis.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination are recognised separately from goodwill and are initially recognised at their fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets with finite useful lives are carried at costs less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives. (see the accounting policy in respect of impairment losses on tangible and intangible assets below).
Impairment losses on tangible and intangible assets other than goodwill
At the end of the reporting period, the Group reviews the carrying amounts of its tangible and intangible assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or the cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or the cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.
Foreign currencies
The Group's presentation currency and the functional currency of all of its operations is the Renminbi ("RMB") as this is the principal currency of the economic environment in which it operates.
In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise.
Government grants
Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.
Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate.
Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable.
Retirement benefit costs
Payments to state-managed retirement benefit schemes and the Mandatory Provident Fund Scheme are recognised as an expense when employees have rendered service entitling them to the contributions.
Borrowing costs
borrowing costs not relating to qualifying assets are recognised in the consolidated statement of comprehensive income in the period which they are incurred.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from 'profit before tax' as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or tax deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary difference to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not be reversed in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognised to the extent that it is probable that there will be sufficient, taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Current and deferred tax is recognised in profit or loss, except when it relates to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively.
Inventories
Inventories are stated at the lower of cost and net realisable value. Costs of inventories are calculated using the weighted average method. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.
Financial instruments
Financial assets and financial liabilities are recognised in the consolidated statements of financial position when a group entity becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets or financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
Financial assets
The Group's financial assets are classified into financial assets at fair value through profit or loss ("FVTPL") and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and point paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition.
Interest income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL.
Financial assets at fair value through profit or loss
Financial assets at FVTPL include financial assets held for trading.
A financial asset is classified as held for trading if:
- it has been acquired principally for the purpose of selling in the near term; or
- it is a part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
- it is a derivative that is not designated and effective as a hedging instrument.
Financial assets at FVTPL are measured at fair value, with changes in fair value arising from remeasurement recognised directly in profit or loss in the period in which they arise. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial assets.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade and other receivables, and bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment of loans and receivables below).
Impairment of loans and receivables
loans and receivables are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the loans and receivables, the estimated future cash flows of the loans and receivables have been affected.
Objective evidence of impairment could include:
- significant financial difficulty of the issuer or counterparty; or - breach of contract, default or delinquency in interest or principal payments; or
- it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or
- the disappearance of an active market for that financial asset because of financial difficulties.
For certain categories of financial asset, such as trade and other receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group's past experience of collecting payments and observable changes in national or local economic conditions that correlate with default on receivables.
an impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset's carrying amount and the present value of the estimated future cash flows discounted at the financial asset's original effective interest rate.
The carrying amount of the loans and receivables is reduced by the impairment loss directly for all financial assets with the exception of trade and other receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade or other receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.
if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.
Financial liabilities and equity instruments
Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Interest expense is recognised on an effective interest basis other than those financial liabilities classified as at FVTPL, of which the interest expense is included in net gains or losses.
Financial liabilities
Financial liabilities including trade and other payables, bank borrowing and amounts due to related parties are subsequently measured at amortised cost, using the effective interest method.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Derivative financial instruments
Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
Embedded derivatives
Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL.
Derecognition
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
On derecognition of a financial asset in its entirety, the difference between the asset's carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.
The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.
Share-based payment transactions
Equity-settled share-based payment transactions
The fair value of employee services received determined by reference to the fair value of share options granted at the grant date is expensed on a straight-line basis over the vesting period, with a corresponding increase in equity (share optionsreserves). At the end of the reporting period, the Group revises its estimates of the number of options that are expected to ultimately vest. The impact of the revision of the original estimates during the vesting period, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to share options reserve. When share options are exercised, the amount previously recognised in share options reserve is transferred to share premium. When the share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount previously recognised in share options reserve will continue to be held in share options reserve.
Share options granted to financial advisors
Share options issued in exchange for goods or services are measured at the fair values of the goods or services received, unless that fair value cannot be reliably measured, in which case the goods or services received are measured by reference to the fair value of the share options granted. The fair values of the goods or services received are recognised as expenses, with a corresponding increase in equity (share options reserve), when the Group obtains the goods or when the counterparties render services, unless the goods or services qualify for recognition as assets.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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