Since 2016, China Hanking has continuously optimized the asset portfolio, increased the operating efficiency and thereby, successfully returned to profitability in 2017. It further achieved a rapid growth of operating results in the next three years. On behalf of the Board, I am pleased to present to the Shareholders the operating results of the Company in 2019.
High-purity iron business
In 2019, the most significant highlight of the Company was the acquisition of the high-purity iron business from the Controlling Shareholders, which further extended the Group’s value chain in iron ore business to high-end quality manufacturing materials. Being of high grade and low impurity content, the iron ore concentrates produced by the Company have been sold to the high-purity iron plant under the Controlling Shareholders for use of its production of high-end ductile casting iron. The latter has become the largest supplier of wind power ductile casting iron in China’s market. Based on the historical data, the fluctuations in gross profit of the high-purity iron plant were relatively low, hence enjoyed more stable profitability. The injection of the high-purity iron business to the Company, allowing all Shareholders of the Company to share the profits generated from this business, demonstrating the commitment of the Controlling Shareholders in further consolidating the Company’s business.
Iron ore business
As to the iron ore business, all of the iron ores were extracted through underground mining during 2019, which resulted in an increase in consolidated mining costs. Despite that, benefitting from the numerous technological improvements continuously made by the Company and its refined management, the Company achieved the optimal allocation in respect of mining extraction and processing. The average cash operation costs per metric ton of iron ore concentrates produced by the Company in 2019 amounted to RMB330, representing a year-on-year increase of 4.76%, ensuring its relatively low level of iron ore production costs in the industry.
Aoniu Mining under the Company continued its efforts in research and development, leading to a number of invention patents, utility patents and software technologies which belong to “The Field of High and New Technology with the Key Support by the State” (《國家重點支持的高新技術領域》), and was accredited as a high and new technology enterprise in 2019. Pursuant to the Enterprise Income Tax Law of the People’s Republic of China (《中華人民共和國企業所得稅法》) and other relevant regulations, Aoniu Mining is eligible to apply for the entitlement to the relevant preferential policies of the State on high and new technology enterprises within a period of three consecutive years after being accredited as a high and new technology enterprise. Aoniu Mining is eligible to pay enterprise income tax at a preferential rate of 15% retrospectively from 1 January 2019 onwards.
Upon the successful acquisition of the high-purity iron business and together with the development of the original iron ore business, the revenue and net profit of the Company realized a leapfrog growth in 2019, among which revenue from the continuing operations was RMB2,252,000,000, up by 93% year-on-year, while net profit was RMB332,000,000, up by 80% year-on-year.
Gold business has long been the strategic direction of the Company’s development. During 2019, against the backdrop of slowing global economic growth and inflation as well as the uncertain economic outlook due to the Sino-US trade war, dozens of central banks worldwide have lowered their interest rates. With the strong boosting effect of sufficient global liquidity and increasing various uncertainty factors, the gold price also demonstrated a continuous rising trend. The gold price was AUD1,640 per ounce upon acquisition of PGO by the Company in June 2018, while the gold price is AUD2,700 per ounce currently.
During 2019, the gold business of the Company carried out a large number of exploration works, while proactively pushing forward its preparatory efforts for the commencement of gold production. In order to develop Tom’s Gully gold mine, a high-grade gold mine in Northern Territory, the Company has made tremendous efforts in relation to mining approval, including the approval for the design of development plan and environmental impact assessment report. On 2 March 2020, the Northern Territory Environment Protection Authority of Australia provided an approved assessment report on Tom’s Gully gold mine, which has completed the final procedure of the environmental impact assessment. Completion of this critical procedure has marked that the development of Tom’s Gully gold mine is right on the fast track.
Adhering to the principles of “safety, community harmony and green mine”, Hanking always attaches great importance to safety and environmental protection in its corporate governance. Hanking has achieved zero fatality, casualty, environmental pollutions, occupational morbidity rate and fires for three consecutive years as of the end of 2019. This is the examination paper that we have completed and lodged to the satisfaction of all!
At the beginning of 2020, the novel coronavirus epidemic broke out and continued to spread worldwide, making a tremendous impact on the global economy. In order to contribute to the epidemic prevention and control, the Group has made a donation of a total of RMB5 million. In response to the epidemic, the Company adopted various prevention and control measures to safeguard the health of all employees, among whom not any one has contracted COVID-19. Meanwhile, the sustainable production activities of the Company were thus secured.
The impact of COVID-19 on the global economy depends on the progress of the fighting measures of various countries. To cope with the negative impacts from the epidemic, various national governments have adopted a range of different stimulus policies. As such, the overall impacts of the epidemic on the global economy and various national economies will be very sophisticated. As to the Company, the output of the Company’s iron ore concentrates decreased and the delivery volume of high-purity iron dropped in the first quarter, which led to the increase in the inventory. Following the basic control on the COVID-19 epidemic in China, various domestic production activities have also resumed normal conditions gradually from the early March in 2020. To date, the output of the Company’s iron ore concentrates has resumed to the normal level. The delivery volume of highpurity iron has also resumed to the similar level as that of output. The Chinese government has launched certain economic stimulus policies and will further launch similar policies one after another, including a number of stimulus policies on fixed asset investments, which will have a positive effect on the iron ore concentrates and high-purity iron businesses of the Company.
During 2019, the high-purity iron plant under the Company has undergone technological improvement, which was completed at the end of September in 2019. Its annual production capacity has increased from 560 thousand metric tons to 660 thousand metric tons accordingly. The Company planned to produce 630 thousand metric tons of high-purity iron in 2020, representing a significant increase from the 290 thousand metric tons of 2019, which will lay the foundation for the continuing growth of the Group’s operating results in 2020.
With the continuously enhancing overall strengths of the Group, we will actively develop new projects in the iron ore, high-purity iron, gold and other fields so as to ensure the sustainable development of the Group.
Since 2016, the quality of assets and operating results of the Company saw drastic changes. This resulted from the fact of forging ahead and striving to make best endeavors by all the employees of the Group despite the hardship and challenges. Such achievements would not be possible without the support from the Shareholders and various partners of the Company. On behalf of the Board, I hereby wish to express my heartfelt gratitude to the management and all staff of the Group for their efforts and contributions throughout the past year.
The Company always values the return to Shareholders. Since its listing, the Company has paid dividends from every recorded positive net profit and the dividend payout ratio has never been less than 10%. A special dividend was also paid in 2017. Following the development for three years, the cashflow generating ability of the Company has now become stronger. In light of this, the Board has formulated the “Dividend Distribution Plan for Shareholders for the Next Three Years (2020-2022)” of the Company. In particular, it is stipulated that the Company will make interim and annual profit distribution, and the amount of dividend shall account for at least 30% of the Group’s total net profit for the period. Accordingly, the Board recommended the payment of a final dividend of HK$0.08 per Share for the year of 2019, representing an increase of 300% year-on-year. The Company will continue to put more efforts in creating value for the Shareholders and increasing the return to them through various means.
Mr. Yang Jiye
Chairman of the Board